What will Brexit mean for the UK housing market?
After four months of uncertainty, Britain is to leave the EU and David Cameron will step down as Prime Minister. But what will happen to the UK property market?
A raft of mixed messages and predictions have been made about the economy, and their possible effects on the property industry. As Chancellor George Osborne spoke for the first time since the result was announced, he said the UK was ready to face the future from a “position of strength” and indicated there would be no immediate emergency Budget, saying it could wait until there was a new Prime Minister.
Mr Osborne said he had spoken to Bank of England Governor Mark Carney and that there were “well thought through contingency plans if needed”. This comes after David Cameron said he would step down as Prime Minister, staying in the post for three months to provide stability but that “fresh leadership” was needed. Meanwhile, Labour leader Jeremy Corbyn was told he would face a leadership challenge if he refused to resign in the face of many frontbench resignations.
But what’s the future of the UK housing market? Following the result, Ed Mead, Executive Director of estate agency Douglas & Gordon, had said on Friday that he believed there would be a London exodus: “Short term, we may see some positive news, with a cut in base rates and a possible tax-cutting emergency Budget… but this is likely to be a short-term gain, with London ultimately losing its hard-earned status as the world’s financial capital, and global company boards relocating to capitals in the EU.”
Meanwhile in the Brexit camp, Paul Smith, the Chief Executive of Spicerhaart, said a drop in prices would be unlikely. He welcomed the Leave result and called for confidence within the industry. “We’ve grasped a huge opportunity for the UK and we have every reason to be confident about the long-term success of the property market,” he said.
“The underlying strength of property is sound, and it will remain a great investment because more people than ever are looking to get on to the ladder and there simply aren’t enough homes available.
“In the short-term, things could be turbulent as people come to terms with a result that wasn’t expected. But we now have some certainty.
“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 continue 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.”
Following Friday’s result, sales director at Chestertons Guy Gittins, said that the company sent out some research they had prepared in case of Brexit. Mr Gittins said that on the back of this newsletter they registered 150 new buyers claiming “we’ve never had such a strong response”.
He said: “We’ve seen that the types of buyers who are buying not for short-term gain, but because they have chosen these locations for their families to live in, have been quite nonchalant to this change.
“If you’ve spent a year looking for a house and you’ve found it, and you’re under offer, has the result of Friday changed this? No it hasn’t,” he said.
Prior to the result, the Treasury said house prices could be hit by between 10% and 18% over the next two years, compared to where they otherwise would have been. And the Royal Institution of Chartered Surveyors had said uncertainty over the outcome had created the biggest fall in the number of people trying to buy a property since the financial crisis. Indeed, immediately following the result, experts predicted there would be a fall in transaction levels and a halt in price rises.
To quell anxiety, Humberts announced it was launching an email property clinic to answer buyer or vendor queries on issues, including their concerns following the Brexit vote.
Ian Westerling, Humberts’ Managing Director, said: “Continued uncertainty is likely to keep the brakes on the property market for the foreseeable future.
“The ‘must movers’ will still move in line with their personal circumstances – upsizing, downsizing or moving for schools. In contrast, many investors and less committed buyers are likely to sit tight to see the economic and social impact of the announcement.”
Since the result, Mark Hayward and David Cox, managing directors respectively of the NAEA Propertymark and ARLA Propertymark, have said they believed prices and rents would remain stable in the short-term but the political uncertainty made the picture less clear for the longer-term.
“The outcome of the EU referendum would create a period of uncertainty among home owners, buyers, investors, landlords and developers,” they said.
“In the short-term we believe that both prices, and rents, will remain stable, but we cannot be certain about the next quarter as political instability, and market unrest, could lead through into prices in the housing market. We believe that the UK housing market is resilient, as is the supply chain that drives it.”
Richard Donnell, Insight Director at property consultancy Hometrack, said the immediate impact of the Brexit vote was likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers waited to see the short-term impact on financial markets and the economy.
He said: “The decision to leave the EU will be most keenly felt in the London housing market, which is fully valued and already facing headwinds. House price growth is already weak and running in low single digits in central London areas and modest price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity.”
The ARLA Propertymark (formally 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.”
Meanwhile, at a transactional level, Grainne Gilmore, Head of UK Residential Research at Knight Frank, said that while the Bank of England may cut the base interest rate, banks could raise their mortgage rates to control lending levels, thus putting more downward pressure on transactions.
Despite the certainty of the result, the full effects for the property industry remain very much unknown and only time will tell what the long-term effects will be.