(Bloomberg) -- The UK housing market is cooling as hopes of an imminent cut in interest rates fade, according to the Royal Institution of Chartered Surveyors.

RICS said Thursday its index of new buyer demand fell last month to the lowest level since November. Gauges of home prices and the number of agreed sales also dropped.

The fall in mortgage costs anticipated by squeezed buyers has failed to materialize as investors bet the Bank of England will keep its benchmark rate at a 16-year high for longer than previously thought. 

At the start of the year, traders were pricing in as many as six reductions in 2024. Now they see just one, with the central bank expected to hold rates at 5.25% next week. The average two-year fixed mortgage climbed to 5.97% on Wednesday, the highest since December, according to Moneyfacts.

“The market has reached a state of inertia with everybody wanting for a Bank of England interest-rate cut and the result of the general election,” Tony Jamieson, senior partner at estate agent Clarke Gammon, said in comments included in the RICS report. “Even houses competitively priced are not getting as much interest as we would expect.”

The findings, similar in tone to surveys by big mortgage lenders, come as the plight of Britons unable to get onto the housing ladder emerges as a key battleground in the campaign for the July 4 election.  

The Labour Party, projected to win the vote, is planning to build more homes and provide mortgage guarantees to first-time buyers. The ruling Conservatives are promising to abolish stamp duty on first-time house purchases up to £425,000 ($545,720).

High borrowing costs are keeping prospective buyers stuck in the rental market, exacerbating supply shortages. Tenant demand intensified in May, while the number of new lettings coming to market remained flat, according to RICS.

The growing gap between supply and demand for lettings suggests rent prices will continue to increase in the near term, albeit at a slower pace than in the past 18 months, it said.

“While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options,” said Justin Young, chief executive at RICS. 

“This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.”

Surveyors remained upbeat about the housing market in the coming 12 months, however, with prices and transactions expected to post healthy increases, RICS said.

 

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