In the immediate aftermath of the referendum result, shares fell sharply, only to rally within days. Then this week, the pound dropped again, reaching a 31 year low against the dollar. At this stage, it is impossible to foresee the long-term impact of the Brexit vote, but it could be that the effects on the general economy are likely to be gradual rather than seismic.
Depending on which way you look at the situation, perhaps there will be a welcome change for some, including first time buyers trying to get a foothold on the housing ladder. But worries about the property markets have been reflected in the share prices of UK housebuilders, with some stocks down as much as 37 per cent. Estate agents and publicly listed property portals have also seen a downturn in their share price since the referendum.
The first thing to factor in is a possible cut in interest rates. On 30 June, a week after the shock referendum result, Mark Carney, the Governor of the Bank of England, signalled that such a cut might be necessary to tackle the economic fallout from Brexit. For homeowners who earlier in the year had been bracing themselves for a rise in interest rates, it is both good news and bad news. Good news because such a cut, if implemented, would reduce their monthly mortgage payments even further. Bad news because when the Bank of England feels the need to reduce interest rates, it is usually the harbinger of a downturn in the general economy.
Last week, Mr Carney’s message to families was clear. “We are advising people to be prudent,” he said. “Certainly, if you are taking out a mortgage, at some point over the life of that mortgage, times will be difficult. You want to make sure as a family or as an individual you can service that mortgage when times are difficult. You don’t want to lose your house or flat,” he said.
As for house prices, it would be a brave expert to make long-term predictions but there is a near-universal expectation that they are likely to fall in the period before Christmas.
Dr Howard Archer, Chief UK Economist at research group IHS Global Insight, said he expected house prices to fall by five per cent in the second half of this year and between five per cent and seven per cent next year.
“Housing market activity and prices now look to be at very serious risk of an extended, marked downturn,” he said. But he added that a number of factors “should help to limit the downside for house prices”, including a likely cut in interest rates and the shortage of properties on the market.
In the immediate aftermath of the referendum result, some sellers in central London dropped their asking prices by 30 per cent or more. A flat in Whitechapel which had been listed at £1.1million in January was re-listed at £720,000. A flat in Notting Hill which had been listed at £1.6million in February was slashed to £1.35 million. As the turbulence in the Stock Market eased, so did the panic in the property market.
But with a prolonged period of uncertainty, sellers keen to shift their properties in 2016 seem resigned to the fact they will have to settle for less than a year ago. “Sellers have generally taken a pragmatic approach to pricing without having to slash their expectations,” says Lucian Cook, Head of UK Residential Research at Savills.
Savills predict a ‘low transaction market’ this summer, with buyers and sellers alike sitting on their hands until there is greater clarity about the exact form Brexit will take. Experts who predicted that property prices would rise by around five per cent are now singing a different tune. KPMG is predicting a fall of five per cent in UK house prices over the next 12 months. The National Association of Estate Agents, more bullishly, is expecting prices to inch upwards, but to be £1,000 lower, on average, by the end of the year than if Britain had voted to remain.
Paul Smith, CEO of Spicerhaart, remains optimistic and said: “House prices may go up and down as they always have, but demand pressures will sustain prices over the long-term. We’re on course to see the greatest investment since the war, and residential property continues to pay off for home owners.
“Britain should be confident. We are an economic powerhouse and we will continue to be a magnet for international investment.”
The Association of Residential Letting Agents also said that demand would fall in the rental market – but prices would stay the same: “Almost half of agents expect the number of prospective tenants per property to fall as international demand weakens. Just over a quarter of agents expect the Brexit result will cause upward pressure on rental costs.”
But if that is the downside of Brexit, there are positives too. For overseas investors, the fall in the value of the pound makes property in central London significantly more attractive than a year ago. Demand will continue to outstrip supply and, with government targets for new homes likely to be knocked off course by Brexit, property assets will retain their intrinsic value. And first time buyers, for obvious reasons, will not be too upset if house prices do fall in the medium term.
With a fresh twist almost daily in the Westminster soap opera, it would be foolish to predict anything with any confidence. But early jitters in the market do seem to have settled and the advantages of buying and owning property in one of the most successful economies in the world are as obvious as ever.
Source: OntheMarket.com
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