UK property — sink or float post Brexit
Thursday 23rd June was a historic day. It was a day of huge ramifications and a highly emotional affair for many people. It was the day the British electorate decided that our future was better placed outside of the EU.
In the twenty days following the vote, a lot has happened. So let’s take stock and review the state of play, and try to understand what the consequences are for the UK’s property and mortgage markets.
What has happened in the twenty days following the vote?
1. Bank of England governor takes control
Mark Carney has made some important announcements and his performance since the vote has been absolutely sterling, excuse the pun. He’s introduced a £250bn emergency bank fund, reduced bank capital requirements and held interest rates at 0.5%. This is all good news for the property market as it ensures banks will have the cash and liquidity to lend to new homebuyers at continually low rates.
2. Property funds suspended due to liquidity problems
No less than eight property funds have been suspended as investors looked to withdraw their investments due to concerns over price falls. As we’re all aware, property is an illiquid asset and these funds come under pressure when investors want their money back at the same time. A key point to make here is that the majority of assets within these funds are commercial property assets and not residential property. So although a concern, it’s not something that should have a material impact on residential house prices.
3. Sterling nose-dive benefits foreign property investors
The pound has dived against all major currencies providing an opportunity for foreign investors to buy UK property on the cheap. Arcadis Group claim that there has been a “bounce” in overseas enquiries and investors could make savings of up to 10%.
4. Demand for property
Although little concrete evidence exists on how the market has reacted post-Brexit, new buyer inquiries declined “significantly” during the month, according to a survey of RICS members, with 36% more respondents reporting a drop than an increase. It also stated that a net 27% of members expect prices to fall in the coming three months. This downturn in activity is no surprise given that elections do typically unsettle homebuyers and some might say the reaction has been less than expected.
What have estate agents been saying? Well anecdotal reports suggest there has been “no initial panic in the housing market as a result of the Brexit vote”. Agents have said the following:
· “While it’s true we have seen some buyers pull out of transactions due to the uncertainty caused by the Brexit vote, the effects haven’t been as great as we anticipated and we expect this to be a small blip as people come to terms with the result,” said Paul Smith, chief executive of haart.
· Peter Woodthorpe, a director at Readings Property Group, an estate agent in Leicestershire, said he had seen “a slight reduction in new enquiries from both sellers and buyers” and that “we’ve not had a single sale fall through due to either the buyer or seller withdrawing.”
· John Frost, managing director of The Frost Partnership, an estate agent which operates to the West of London, said there had been little local impact after the Brexit vote and that “current deals are all progressing”.
· Ryan Williams, senior consultant at McCartney’s, an estate agent covering the Mid-Wales and the West Midlands said, “unlike the nervous kittens in the city, I don’t think most buyers will panic. Expect an over-reaction in London but a more common-sense approach elsewhere. Life will go on.”
Auctioneers have provided a similar story and remain optimistic:
· Andy Thompson, Auction Consultant at Edward Mellor who operate in the Manchester region explained, “we’re still very busy and we’ve seen very little change in listings and buyer enquiries. We’re optimistic as we believe auction is a good route to sale in choppy times as sellers can set a reserve and achieve a market price much quicker in comparison to a normal sale.”
· Roger Lake, Managing Director of Auction House explained “entries for July are steady, with the total projected to be only 5% down on last year. We are now trading in a climate of opportunity and I expect the repercussions of Brexit to be quickly accommodated.”
5. Economic and political uncertainty
A cocktail of uncertainty exists as a result of the vote. Firstly, the political environment is and has been utterly confusing and although Theresa May is now the new Tory Prime Minister and has fully appointed her Cabinet, so many questions remain unanswered. Will there be a general election? Will parliament actually go through with Brexit? And will the Labour Party ever agree on a leader to make an effective opposition? The list goes on.
Secondly, from an economic perspective former Chancellor George Osborne was slow on the uptake as he tried to come to terms with how Britain should plan for life outside the EU. Will his successor Philip Hammond and Liam Fox who is at the helm of the new Department for International Trade be able to negotiate good trade terms that will have a positive effect on the economy? What will the impact of the new Department for Exiting the European Union have on international relations? Only time will tell but my goodness the new Government has a lot of work to do.
What are the predictions on future house prices?
Expert opinion varies greatly — some believe there could be a moderate fall in prices whereas other believe price growth may merely fall.
Bank of America Merrill Lynch believes London could see prices fall ten per cent in the next year, while KPMG predicts a drop of five per cent across the country but more in London. Conversely, The National Association of Estate Agents believes property will still rise, but will be £1,000 lower by the end of this year than they would have been.
According to the recent RICS survey, surveyors generally remain bullish on the medium-term prospects for the market, with prices expected to surge by an average of 14 per cent in the next five years. Adam Challis, the head of residential research at real estate firm JLL said, “It is encouraging to see the longer-term measure staying positive, suggesting any house price correction will be mild and short-lived.”
What do we think at Dwell?
There are certainly unknowns in the current market environment, however in our view the fundamentals of the property market are still strong. Mortgage rates are low and the housing-supply imbalance is not going to be solved any time soon. Buyer sentiment could well be impacted in the very short-term by the political and economic uncertainty that currently exists. However, over the next two years we believe property prices will remain stable and not fall like some commentators believe. In the longer-term price growth will be dependent on how well the UK negotiates international trade deals and the resultant strength of the economy in a post-EU environment.
Mark Lawrinson, Regional Director at London estate agent Portico makes a great point by saying, “outside prime central London, the market is driven by domestic buyers rather than investors, who will still need somewhere to live regardless of our status outside the EU. They will also continue to need to upsize as their circumstances change, and we expect this market to be relatively unaffected by Brexit.”
In terms of mortgages, rates are at an all-time low and could potentially go even lower. It’s a fantastic time to re-mortgage and save money.
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