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BY  Jill Namatsi, Bloomberg News

, Source: Halifax

(Bloomberg) -- Britain’s prospective home buyers pulled back from the property market at the sharpest pace in eight months, an survey showed in a sign that higher borrowing costs are weighing on affordability.

The Royal Institution of Chartered Surveyors said its index tracking house prices fell to minus 46% in June from minus 30% the month before — 11 points below the level economists had expected. A gauge of new buyer interest fell 25 points to minus 45%.

The figures are the latest to point toward a rapid cooling in the housing market after gains during the pandemic boosted the average value of a home by a quarter. The Bank of England has raised interest rates sharply since the end of 2021 to quell inflation, driving the average cost of mortgages to levels last seen in the global financial crisis more than a decade ago.

“Activity levels are likely to remain relatively subdued,” Simon Rubinsohn, chief economist for RICS, said in a statement on Thursday. “House prices are only very modestly down on their recent highs and well above where they stood at the onset of the pandemic.”

He said “further declines are possible” for prices, but that the lack of properties up for sale is near a historic low. That’s helping to maintain values for now, particularly in London.

The RICS report, assessing the views of surveyors as they examine property put up for sale, is more forward looking than official Land Registry data on transactions completed or the figures from mortgage lenders when loans are extended to buyers. 

All the indicators now suggest prices are falling but that they haven’t dropped as sharply as the 10% fall anticipated by economists at the start of this year.

“Continuing worries about rising mortgage rates and the cost of living are prompting many prospective purchasers to sit on their hands, which is softening sales prices,” said Jeffrey Leaf, a London agent with Jeremy Leaf & Co. “Negative publicity is beginning to lower seller expectations.”

RICS said new sales instructions were “steady” and that the average stock level for estate agents increased marginally to 37.4 properties.

“Although this level of inventory is still slightly higher than that reported at the end of last year, the number of homes available for purchase currently remains very low on a longer term historical comparison,” RICS said in its report.

The outlook for the next three months as well as the next 12 months remained firmly negative, except in Northern Ireland and Scotland. 

In Scotland’s case, Jennifer Helen Campbell, head of rural real estate at DM Hall near Stirling, said distressed residents are benefiting from a rent freeze and a temporary suspension of evictions. The moratorium is in place until March 2024.

Read more:

• UK House Prices Fall Most in Over Decade as Borrowing Costs Rise
• UK Home Price Declines Quicken as Mortgage Rates Darken Outlook
• BOE Says 4 Million Households Face a Jump in Mortgage Costs