LONDON – The housing market in England and Wales is showing signs of weakening, with estate agents reporting a decline in new buyer inquiries. This downturn is attributed to concerns over potential mortgage rate increases and higher inflation, both linked to the ongoing conflict in the Middle East. The situation underscores the importance of sound fiscal policy and a stable global environment for a healthy housing market.

The Royal Institution of Chartered Surveyors (RICS) survey highlights a growing caution among buyers and sellers. This caution stems from fears that rising inflation and interest rates will make homeownership less affordable, leading to slower sales and a reluctance to list properties. The Bank of England's warning of unavoidable inflation due to the Middle East conflict and rising energy prices has further fueled these concerns.

The potential for increased government borrowing costs, and their subsequent impact on mortgage rates, adds another layer of uncertainty. Lenders rely on swap rates, which tend to move in tandem with government bond yields, to price their fixed-rate mortgages. A rise in borrowing costs will inevitably translate into higher mortgage rates, further dampening demand.

Tarrant Parsons, head of market research and analysis at RICS, notes that market activity and sentiment are likely to remain subdued until there is greater clarity regarding inflation and borrowing costs. He specifically points to southern England and London, where affordability pressures are already significant, as areas likely to be most affected.

The RICS survey indicates a decrease in new buyer inquiries and a decline in agreed sales, suggesting a slowdown in market momentum. While the report notes a slight improvement in buyer inquiries compared to the previous month, the overall trend remains negative. The stagnant flow of new properties being listed for sale further contributes to the market's weakness.

The report also reveals a widening regional disparity in house price growth, with stronger price declines reported in London and the south, while the north of England continues to post marginally positive readings. This regional variation underscores the need for localized solutions to address housing challenges.

In the rental market, demand is outpacing supply as landlords exit the sector due to increasing regulation and higher taxes. This imbalance is likely to drive up rents, further exacerbating housing affordability issues.