House prices rose again last month, chartered surveyors said today, but a boost to the supply of new homes coming up for sale following the Government's decision to abolish home information packs (Hips) could depress the market during the rest of the year.
The Royal Institution of Chartered Surveyors (Rics) said that 22 per cent more surveyors reported a rise than a fall in house prices during May, compared to the positive balance of 17 per cent in April. Prices are continuing to rise in most parts of the country, the data suggested, but there were exceptions, including Northern Ireland, Wales, Yorkshire and the West Midlands.
The Government's decision to drop the requirement for would-be sellers to compile Hips before putting their properties up for sale, one of the first policy announcements made by the new administration, lead to an increase in supply, according to Rics.
A fifth more surveyors reported rises in the number of new instructions, rather than falls, last month, up from 11 per cent in April. Three-quarters of surveyors said they expected to see a continued increase in supply, typically of around 15 per cent, thanks to the end of the Hips scheme.
With demand from buyers increasing more slowly, however, that could lead to a downward pressure on prices, with several other housing analysts already warning that the market has begun to slip back. Halifax, Britain's biggest mortgage lender, said last week that house prices fell by 0.4 per cent during May, the second month running in which the market had declined. Nationwide, the largest building society, reported a small increase.
"Surveyors are generally confident that sales will continue to pick up over the summer months," said Ian Perry of Rics. "The increase in supply as a result of the abolition of Hips is helping to support this optimism, despite continuing concerns about mortgage finance. A higher level of instructions should, meanwhile, also lead to a flatter trend in house prices in the latter part of the year."
Next week's emergency Budget could also boost supply, housing market analysts warn, if the Chancellor, George Osborne, introduces higher rates of capital gains tax on assets such as second homes. Assuming such increases would not come into effect until the beginning of the new tax year next April, that could prompt a rush by second-home owners to cash in profits to beat the tax rises.
Demand for housing, meanwhile, looks set to remain muted. One problem is the shortage of mortgage finance, with banks and building societies reluctant to increase lending, particularly as the emergency support offered during the financial crisis from the Bank of England comes up for repayment. In addition, there are mounting fears that interest rates, which have remained at an all-time low for more than a year, may begin to rise more quickly than expected, with some economists now tipping the Bank of England's Monetary Policy Committee to increase the cost of borrowing before the end of the year.
Rics' data suggests that the ratio of sales made to property on the books at surveyors – a key indicator of the health of the market – is already beginning to falter, falling from 28 to 27 per cent last month.Reuse content