The Royal Institution of Chartered Surveyors (RICS) has added its weight behind those predicting a rise in the Bank of England Base Rate (BBR) in November.
Its UK Economy Brief argued that a solid economy would lead to another BBR rise in November.
Driven by the rising levels of consumer spending, RICS indicated that with global growth forecast to remain robust, a rate rise before the end of the year looked likely. The organisation discounted the argument that debt levels and rising utility costs would dampen the market further, although it indicated that consumer spending would grow at a less hectic pace than the previous six months.
The UK Economic Brief by RICS also suggested a healthy labour market would go some way to stabilising and growing the market, and RICS stated that a strengthening employment and wage picture was helping to shape the market and improve buyer confidence in the sector.
A bleak picture
However, the study painted a bleak picture for aspiring first-time buyers (FTBs). With house price inflation currently at 6 per cent, according to government figures, which far outpaces average earnings growth, of 4.4 per cent (measured as a three month moving average), FTBs are finding it even harder to get their first foot onto the property ladder, with issues of affordability stifling market growth. Although mortgage loans to FTBs rose 20 per cent in the first seven months of 2006, compared to the same period in 2005, the proportion of FTBs in the market remains low.
In its study RICS indicated that the August quarter point interest rate rise had yet to impact on prices and buying activity. The prospect of further monetary tightening had slightly dampened surveyor’s confidence in the short term, although the mood still remained largely upbeat.
Expectations for price rises over the next three months were close to this year’s high point, and surveyors anticipated a strong autumn selling season. Further rate increases would cool the market, the study suggested.
Residential growth
Focusing on the growth of residential property, RICS indicated that house prices rose for the fifth consecutive month. Much of this growth came as a result of new buyers entering into the market, coupled with a halt in the number of properties available, with demand continuing to outstrip supply. As long as this continues, there seems no end to the rise in property prices. Although the government has pledged to significantly increase home ownership, this is not an over-night solution, so the issue of affordability will remain a deterrent for aspiring FTBs and those attempting to move, but will keep the UK economy steady.
In its study RICS revealed that buyer enquiries rose for the 15th consecutive month in August, increasing at the fastest pace since September 2003. Completed property sales for the past 12 months also rose firmly as stronger buyer interest fed through to final transactions, which helped further boost the market.
New instructions to sell property showed little change in August as the holiday season came to an end.
However, despite growth in the sector, investment activity in the market dropped during the second quarter of the year, with this attributed to a lack of available products on the market.
Commercial growth
Looking at the growing commercial market, the UK Economic Brief issued by RICS for September revealed an expansion of occupier demand, supporting rental growth. Rent rises have largely matched consumer price inflation since 2005. However, RICS indicated that the strengthening of rental growth had almost entirely reflected the marked recovery on the health of the office sector, with rent rises in July reaching 3.3 per cent. This almost doubled the rate seen in March.
Despite evidence of rises within the commercial sector, property yields in the second quarter of 2006 fell to 5.1 per cent for prime premises, the lowest recorded figure in 35 years. However the pace of decline was the smallest in over a year.
It was also predicted that the next few months will see a cooling of investor interest in the overseas commercial market, with foreign investment demand waning as a result of increasing bond yields.
Impact
A number of commentators have pointed to a Base Rate rise in November, and with differing market conditions, continued consumer debt, albeit at more manageable levels, means it is hard to see an alternative scenario.
Although this will undoubtedly have some impact on the housing market, many people have stated that a November rate rise is most likely and have already factored it into their business models.
