The U.K. housing market gained momentum last month amid a worsening supply-and-demand-imbalance, according to a report published Thursday.
The Royal Institution of Chartered Surveyors said its price gauge increased to an 11-month high of 40 from 34 in May as the stock of homes fell to a record low. Economists in a Bloomberg survey had forecast a reading of 36. A separate report by LSL Property Services and Acadata said house prices in England and Wales gained for a third consecutive month.
“Prices across much of the country are continuing to be squeezed higher with property set to become ever more unaffordable,” said Simon Rubinsohn, RICS chief economist. “There had been some hope that the removal of political uncertainty following the general election would encourage more properties onto the market, but the initial indications are that this is not proving to be the case.”
With prices rising, affordability is being stretched for many prospective homebuyers. Chancellor of the Exchequer George Osborne responded in his budget on Wednesday by cutting a mortgage tax break for landlords that had helped them outbid owner-occupiers. Osborne said the reduction, which will be phased in, will “put security of home ownership first.”
The so-called buy-to-let market has also been in the spotlight at the Bank of England. Governor Mark Carney said this month that officials are monitoring developments and have asked for a review on potential threats to financial stability from the sector. The BOE will also determine what regulatory tools may be needed to mitigate those risks.
“It will be interesting to see how the rules around this market evolve,” said Acadata’s Peter Williams and John Tindale. “The combination of tighter controls across the mortgage market and the possibility of rate rises in 2016 will act as brakes on the overall market, along with lenders taking their own steps to curb lending.”
The LSL report showed that prices increased 0.3 percent in June from May. While the annual rate of growth cooled to 4.1 percent, the least since 2013, sales surged on the month and values rose to a new high of 278,849 pounds ($428,000).
Buyer demand increased in all parts of the U.K. except the southeast in June, RICS said. Northern Ireland and East Anglia saw “particularly firm momentum” during the month.
The supply shortage is “just as visible” in the rental sector, Rubinsohn said. Demand for rented accommodation outpaced supply for an 18th consecutive month, and respondents expect rental values to rise by 3 percent over the coming year.
RICS also said the net balance of surveyors expecting prices to rise over the next three months increased to 41 percent, the highest in more than a year.