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The drop in sales could be explained by concerns over an interest rate rise. Photograph: Chris Ison/PA
The drop in sales could be explained by concerns over an interest rate rise. Photograph: Chris Ison/PA

Housing market reaches plateau, say surveyors

This article is more than 9 years old
Number of sales agreed last month fell for first time in nearly two years according to the Royal Institute of Chartered Surveyors

The UK housing market has reached a plateau, with the number of sales agreed last month falling for the first time in nearly two years, according to surveyors.

The drop in sales and a fall in new buyer inquiries for the second month in a row could partly be explained by concerns over a rise in interest rates weighing on buyer confidence, the Royal Institution of Chartered Surveyors (Rics) said.

Estate agents also reported a slowing of growth in house prices last month, particularly in London. A balance of +9% of agents reported price rises in the capital in August, down from +11% in July.

For the UK as whole, price growth remained stronger with a balance of +40% agents reporting a rise, although that was also down on July's +48%, and agents expect prices to rise faster over the next 12 months outside the capital than inside.

Simon Rubinsohn, Rics chief economist, said: "Some of the momentum has come out of the housing market of late reflecting in part concerns over a likely rise in the cost of borrowing at some point in the not too distant future.

"There are increasing signs that the London market is gradually moving on to a more sustainable footing with a modest increase in the number of instructions coming through slowly helping to create a better balance with demand and, in the process, taking the edge off price gains."

The Rics report echoed the message from Barratt Developments, which was the latest housebuilder to talk of a return to normality in the market, after more than doubling annual profits on the back of the government's Help to Buy initiative.

The mortgage-subsidy scheme has given housebuilders a huge boost since it was introduced in April 2013. Barratt's profits soared to £390.6m in the year to 30 June. The private average selling price climbed 12.9% to £241,600, partly reflecting Barratt's move away from building flats to larger family homes since the downturn. The company completed 14,838 houses – 8.6% more than the previous year's 13,600.

The builder, which owns David Wilson Homes, expects to construct 15,700 homes this year. Mark Clare, chief executive, said: "That's a good, solid, continued growth rate." Help to Buy, which was due to end in 2016, has been extended to 2020.

Clare added: "Following the launch of Help to Buy, sales rates over the summer period last year were exceptionally strong. This year we have seen a return to more normal seasonal trends."

His comments followed those made by the Redrow boss Steve Morgan that "things are settling down to a more sustainable pattern". The summer months tend to be quieter as people go on holiday, but last year the Help to Buy scheme ramped up demand for new homes. The scheme accounted for 30% of Barratt's sales last year, compared with 35% for Redrow. Clare said sales were at similar levels now.

Barratt intends to return £400m to shareholders by 2017, with the first payment of £100m in November 2015 – earlier than expected. Including dividend payments, it will return £950m of cash to investors.

However, Barratt's share price has fallen by 18% over the past six months, compared with a 2% rise for the wider FTSE 100 index, and the company recently dropped out of the blue-chip index again.

Other housebuilders have also underperformed the market amid expectations of higher UK interest rates.

Looking ahead, the proportion of estate agents surveyed by the Rics and expecting UK house prices to rise over the next three months fell to a balance of +9% in August from +24% in July.

House prices are expected to rise by 2.3% over the next year, lower than expectations of a 3.7% rise at the start of 2014.

The Rics said that a shortage of conveyancers and new measures introduced under the mortgage market review in April – which requires lenders to apply stricter rules when assessing whether a borrower will be able to meet mortgage payments – were adding two to four weeks on to the time it takes to complete a transaction.

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