Demand from house buyers fell last month, with rising living costs and higher interest rates only having a “modest” impact on the housing market, according to the Royal Institution of Chartered Surveyors. It forecasts that prices are set to rise in the short term.

Respondents reported that new buyer enquiries fell in May, with a net balance of -7%, in the body’s latest UK Residential Market Survey, down from a net balance of +8% in April. The report says that “some respondents put this down to some buyers tightening their belts as the cost of living begins to have an effect”, adding that May’s survey brings to an end eight consecutive positive results for new buyer enquiries.

The volume of agreed sales saw little change, with a flat picture reported. Sales expectations over the next three months are also predicted to be flat, with a net balance of +1%, from a net balance of +10% in April. Over the next twelve months, expectations are that sales are set to fall to a net balance of -24%, with respondents forecasting a fall in sales down from -4% in April.

New instructions to sell homes were also largely flat during May. The report says: “There seems to be little respite for lack of supply in the future, with respondents citing the weakest picture since December 2021 for new/requested market appraisals. This suggests there is little prospect of more homes coming onto the market in the immediate future.”

The study adds that given the market’s constrained supply, house prices will continue to rise. A net balance of +73% of contributors reported an increase in house prices during May. All parts of the UK continued to see rising prices, with growth exceptionally strong in Northern Ireland, Northern England and Wales.

Looking ahead, 12-month price expectations eased at the UK level for a third successive month. Although, a net balance of +42% of survey participants still forecast house prices will be higher in a year’s time, this is down from +78% in February and is the most moderate reading posted since January 2021. However, twelve-month price expectations remain in positive territory across all parts of the UK, the report adds.

In the lettings market, tenant demand continues to rise firmly according to a net balance of +48% of contributors – the same as in April. At the same time, landlord instructions continue to fall, with the latest net balance coming in at a net balance of -13% following a previously net balance reading of -16%. As a result, rental growth expectations over the next three remain robust, returning a net balance of +58% in May.

The Royal Institution of Chartered Surveyors chief economist Simon Rubinsohn says: “The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point, on buyer activity in the sales market.

“Despite this, prices are viewed as likely to remain resilient into 2023. But as is often the case in these circumstances, the pressure is likely to felt more visibly in transaction levels which are seen as likely to slow as the year wears on.”

“Meanwhile, what is particularly striking in the latest Rics survey is both the current and anticipated strength in the rental market. New instructions of property to let continue to fall according to respondents to the survey while demand is still very strong leading to rental levels being bid higher and greater challenges for tenants who aren’t in the position to compete for the available stock.”

Paragon Bank managing director of mortgages Richard Rowntree adds: “Supply for renters continues to be constrained as existing tenants remain in their property for longer and smaller-scale or accidental landlords sell and leave the sector.

“The importance of larger-scale portfolio landlords that underpin the supply of rental property and provide quality homes to tenants cannot be underplayed in this current market.

“It is these landlords who have a greater propensity to buy additional rental property and we should hopefully see the supply of rental homes increase in the coming months as more stock becomes available to buy. The greatest barrier for acquisitive landlords has been the availability of homes but we see light at the end of the tunnel.”