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
The British people have cast their vote and we are to leave the EU. As a cloud of uncertainty unfolds over the UK housing market, Property Reporter takes at look at how the market has reacted with comments from those within the industry.
David Cox, managing director of Association of Residential Letting Agents (ARLA) and Mark Hayward, managing director of National Association of Estate Agents (NAEA), commented: “The outcome of today’s EU referendum will create a period of uncertainty among homeowners, buyers, investors, landlords and developers. We can expect international investors to look a lot harder at the UK as a market; this will have a consequential impact upon the house building sector as investment may be stalled.
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. But as we indicated in our Brexit report1 last month, the bigger impact may well be in the skills necessary to drive UK housing development, and this is now a major concern for UK buyers and renters.”
Stuart Law, Chief Executive of Assetz Property, comments: “Today’s result to leave the EU has only increased the cloud of uncertainty cast over the British property market, but it is not the time to just sit back and watch the events unfold. Now is the time for buy-to-let investors to turn their attention away from the Capital, which could experience difficult times ahead in terms of economic and currency uncertainty. Cash rich investors should instead look to the Northern Powerhouse, which still remains a strong contender for those seeking to protect capital and produce an income well above bank interest rates.
We still expect prime London prices to continue falling and many of the tens of thousands of luxury homes in the pipeline to be mothballed as demand from all over the world fails to meet that potential level of supply. The rest of London will definitely be hit by a perfect storm of several factors hitting house prices which is great news for house-buyers but not for investors and homeowners. We know that the City is going to relocate large numbers of highly paid bankers to Paris, Dublin and the rest of Europe and the loss of these highly paid house buyers and renters can only have a negative effect. Add that to the new buy to let mortgage interest tax and we see no appeal for speculative house price growth and negative cash-flow in London for the foreseeable future.
The rest of the country, however, is likely to be far more stable and we expect house prices to be very slow to react, if at all, as a minor economic slow-down is balanced by low mortgage interest rates and huge demand for housing. Rents outside London will remain strong and continue to grow steadily, created by a modest reduction in house building as the banks reduce lending again.”
John Phillips, group operations director at Spicer Haart and Just Mortgages, says: “It will be an interesting time over the next few days, I expect people to panic like mad and then things will calm down again. Similarly there will be a slight economic slow down while people decide how things will affect them and then it will pick up again after a brief period of adjustment.
The mortgage market had been racing away again reminiscent of pre-2007, but then slowed down a little bit in the couple of months building up to the referendum back to more normal levels and I think that this is what we will stay at until the end of the year. In some ways this is a positive for the housing market as it will bring more normality back to the market. We still have a chronic shortage of houses so I don’t think that house prices will drop or that people will stop buying or selling. What we still need it for house builders to up their level of building again, although this may stay depressed for a little while to come.
The beauty trade wise is that in the next two years we have the best of both worlds, we will still be in the EU but we will also be able to start trading freely with the rest of the world. There are already calls for referenda in other EU countries, so in the next two years the EU is likely to look like a very different place.”
Russell Quirk, CEO of hybrid estate agent, eMoov.co.uk, had this to say: “Many will be running to their nuclear bunkers now that the apparent end of the world is nigh. But before they do, they might want to take a breath and sit tight. We’ve voted to leave the EU and regardless of personal views we must respect the democratic position of the populous.
We don’t anticipate any tangible difference where the UK property market is concerned and the supply and demand balance that is currently dangerously out of kilter will see little sign of stabilising itself.
Going forward the UK market will go from strength to strength, perhaps with wobbly knees at it emerges from the clutches of the EU, but it will soon find its feet again.
There may be many buy-to-let landlords and second homeowners rushing to list their property for sale in order to maximise their profit, before the “Armageddon” on the horizon destabilises the pound. Ironically it will be these people flooding the market with additional stock that may see prices cool ever so slightly.
However, property values increased by 6% over the course of 2015 and we predict the same rate of growth by the end of 2016.
Homeownership will remain far out of reach for the average UK citizen and the overwhelming swell of demand for property will remain despite our choice to leave the EU.
This could, however, be the final nail in the coffin for the Prime Central London market, as the capital’s high-end properties have never been less desirable in the eyes of foreign investors. With demand having slumped to record lows over the last year, it’s not looking good for the capital’s property elite.”
Gráinne Gilmore, Head of UK Residential Research, Knight Frank, said: “The UK vote in favour of Brexit has the potential to make a relatively swift impact on the housing market. The scale of this effect, especially in the medium to long-term, will depend on the outcome of negotiations on the UK’s exit.
In the short-term, consumer confidence is likely to be knocked by the continued uncertainty, especially with regards to trade. This may weigh on activity in the market, especially those making discretionary purchases, which could result in a slip in transaction volumes, and prices. However, uncertainty could also result in a further dampening of homes coming onto the market, and this lack of supply will provide a floor under prices.
There is also a chance that mortgage rates become detached from the base rate. While the base rate may well be cut in the coming weeks, lenders may raise their rates as a technique to control their lending levels.
Both the reduced availability and increased cost of credit could put additional pressure on transactions as well as affordability. However, it is worth noting that much mortgage activity recently has been in fixedterm fixed-rate deals, ranging from 2 to 10 years. Borrowers on such deals will not be affected by rising mortgage rates over these time frames.
In the longer term, any increase in inflation could trigger base rate rises, which would again translate into higher mortgage rates. This scenario would be more challenging for those on variable rate deals.
If house prices are also declining, this will put the most pressure on highly leveraged borrowers. The second-round effects from a slowing economy and growing unemployment will also be felt in the housing market, as these factors affect household incomes as well as sentiment.
In the short to medium-term, the fundamental demand and supply dynamics in the market are unlikely to change, with a continued structural undersupply of homes across the country, underpinning pricing in some of the most desirable and best connected areas.”
Benson Hersch, Association of Short Term Lenders CEO, says: “I believe that much of the result represents a protest vote against the establishment, including both major political parties. Clearly, many people feel disenfranchised and left out.
Economically, whatever the truth of the pre-vote alarmism, there will be a prolonged period of uncertainty ahead. This is not what markets want. I foresee sporadic fluctuations in currency and share pricing. Brexit may well help the upper-level property market, especially as foreigners seize the chance to buy at more advantageous exchange rates. On the other hand, economic uncertainty could inhibit price rises in the mainstream market.”
John Forrester, EMEA Chief Executive of Cushman & Wakefield, said: “The property sector has probably followed the EU referendum more closely than any other industry and has witnessed the impact of the uncertainty and speculation in the run up to the vote.
While the decision of the UK electorate is now confirmed, a period of further uncertainty is unavoidable as businesses, the financial markets and the political establishment in the UK, Europe and globally come to terms with what this means.
Clearly the impact of this decision will be felt beyond the UK’s shores as the UK is the EU’s third largest market by population. We are therefore entering a period of unprecedented change as markets and sectors adapt. What is clear is that in any scenario there will always be opportunities and those will become clear in the weeks and months ahead.”
Richard Donnell, Insight Director at Hometrack, comments: “All indications are that the UK has taken the significant decision to leave the European Union and, as a result, the near term prospects for the UK housing market now look very uncertain. The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait and see the short term impact on financial markets and the economy at large.
The decision to leave the EU will be most keenly felt in the London housing market which is fully valued and already facing headwinds. History shows that external shocks can reduce sales volumes by as much as 20% with sales volumes already down over the last year. 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.
Even a sharp fall in the Sterling is unlikely to attract overseas buyers in the near term. Across London, where house price growth is running at 13%, we expect the rate of growth to slow rapidly on greater uncertainty and market activity in the capital is set to remain disrupted until consumers and the financial markets can see a clear strategy to manage the process to a position where the outlook for the economy, jobs and mortgage rates becomes clearer.”
Richard Pike, sales and marketing director at Phoebus Software, said: “This is a win that was won on non-economic campaigning grounds, we all have to now live with any positive or negative consequences that may occur. David Cameron’s resignation will add significantly to the sense of uncertainty and it will not deliver the stability that the Prime Minister said that he wanted to achieve whatever the outcome. Many predicted the fall in the pound, but not the levels that it would fall to. The FTSE is now in serious decline.
The housing market in general shouldn’t be too affected immediately but it will be interesting to see what happens with the upper-level property market and whether foreigners seize the chance to buy at more advantageous exchange rates or potential buyers will be put off by the new perception of the UK as a standalone state?”
Stephen Solomons, a partner in the Real Estate team at Blake Morgan, had this to say: “Real Estate markets, whether commercial or residential, always prefer certainty. The last few months have led to a slow-down in transactions while people await the outcome of the Referendum. In some recent cases, transactions have been entered into with options to determine depending on the result of the vote, and those agreements may now be determined. Now that we know that the Leave vote has won, we still expect to see the Real Estate markets to pick up rapidly. Banks are still in the market to lend on the right product and there is a large amount of private equity cash available for property transactions. There may be some weakness in areas involving prime offices if companies start relocating their HQs.”
Martin Walshe, head of Residential at Cheffins comments: “Now is the time to stop procrastinating, we know we are leaving the EU and our property market will soon return to its former strength. Both buyers and vendors waited with bated breath to hear the Referendum result, and now that we know we are leaving the EU, those who have sat on the fence will be returning to the market in their droves. Whilst we will probably experience a short period of adjustment, the UK property market is incredibly resilient and investment in housing will remain a cornerstone of our market, whether we are a part of Europe or not.
Despite 2016 being the year of the Referendum, we have recently seen the best market ever experienced, and a Brexit will not affect this. Cambridge in particular will continue to be an international center for innovation and education, and our booming market will return to its former strength. Residential markets have always been influenced by uncertainty and we are now entering an economic climate which has never been experienced before, so the only strategy is be back to business as usual and brace ourselves for the busy period which is to come.”
Randeesh Sandhu,Urban Exposure CEO comments: “While markets may react negatively to today’s ‘Leave’ vote, the fundamentals underpinning the UK housing market still remain attractive.
In the short-term, while there may be an impact on decision-making and activity levels, we also expect to see an increase in interest from foreign investors if sterling devalues to the extent many have predicted.
Indeed, the UK still has unique appeal as a market for international purchasers – from the mixture of characteristics including our quality of life, culture and diversity, ownership security and legal system, time zone advantages for international business, language, schooling and education.
A return to ‘business as usual’ may take longer than if we had remained as the specifics of a ‘Brexit’ will take time to determine and therefore there will continue to be a period of uncertainty. It is important that the government pays close attention to the key risks that could affect the sector during these talks – for example, the impact on the supply of labour, which could further exacerbate the acute shortages of skilled workers for UK construction firms if Brexit restricts migration from the EU into the UK.
Change will come out of the UK leaving the EU, but the imbalance between demand and supply in the UK housing market will endure.
So while buyers may pause as the implications of Brexit are figured out, over the medium to long-term we do not expect housing markets to change drastically as a result of the vote.”
