With the UK economy contracting at its fastest rate since 2009 – a quarterly level of 0.4% according to the latest Markit’s PMI report – the Bank of England chose to cut interest rates this week to ward off Brexit fuelled recession.
Meanwhile, the International Monetary Fund (IMF) has now revised down its estimate for global growth to 3.1% this year, citing the impact of the UK’s decision to leave the 28-member bloc.
Services and manufacturing in the UK have been hardest hit, with both sectors reporting that output and new orders fell sharply in July. But what has been the impact of the Brexit vote on the housing market so far, and what is likely to happen moving forward?
There is nothing that markets dislike more than uncertainty and surprises, and the EU vote unleashed considerable forces of uncertainty. It was therefore no surprise to come across several reports suggesting that agreed property deals were falling through up and down the country within a few weeks of the vote as post-Brexit jitters hit, while buyer demand has now dropped to an eight-year low, according to the Royal Institution of Chartered Surveyors (RICS).
“Very few agents have actually reported more than the occasional sale falling through as a result of Brexit and in many cases this seems to have been an excuse for a sale that seemed to be going nowhere,” said Ed Heaton, founder and managing partner of Heaton & Partners, a buying agent.
“It is clear from the sheer volume of price reductions on houses and flats in London that many sellers are spooked by what might lie ahead,” he added.
With many would-be buyers opting to sit tight to see what the economic and social impact of Brexit will be, the volume of property sales across the country has dropped, although the introduction of higher stamp duty costs for buy-to-let investors and those acquiring second homes at the start of April has also contributed significantly to the slowdown.
Simon Rubinsohn, RICS chief economist, commented: “Big events such as elections typically do unsettle markets so it is no surprise that the EU referendum has been associated with a downturn in activity. However, even without the build up to the vote and subsequent decision in favour of Brexit, it is likely that the housing numbers would have slowed during the second quarter of the year, following the rush in many parts of the country from buy-to-let investors to secure purchases ahead of the tax changes.”
With sales falling through, the housing market was widely expected to come to a virtual halt as a result of Brexit, as politicians undergo lengthy negotiations to help establish what post-Europe looks like for Britain, with just the ‘must movers’ – those upsizing, downsizing or moving for work or schools – moving in line with their personal circumstances.
But while the Bank of England’s regional agents’ survey also shows that there has been a dip in housing market activity following 23 June amid a new norm in market dynamics, underpinned by the ongoing unknowns, some agents have found that property transactions have so far proved to be more resilient than initially anticipated.
Jeremy Leaf, a north London estate agent, said: “Although we were concerned there may be a fall in market activity following the EU referendum, we have only seen fewer buyers and sellers more keen to find a realistic compromise in order to do business. None of our transactions, viewings or market appraisals have been cancelled either and many new appointments and sales have been arranged in both our offices since Brexit.
“For instance, within a few hours of opening after the vote, our North Finchley office agreed terms just below the asking price on a four-bedroom house. Offers were accepted on six other properties in the following seven days and four exchanges of contract took place on one day alone that week – more than we might have expected at this time of year.”
House prices were at the forefront of the EU debate in the run-up to the referendum, with the now former chancellor George Osborne claiming that the value of homes in the UK could fall by up to 18%, or more than £50,000, within two years of the Brexit vote.
As anticipated, greater uncertainty in the wake of the EU referendum has had an adverse impact on household sentiment, with the latest survey by Knight Frank and IHS Markit, conducted in July, signalling the greatest month-on-month loss of momentum in property prices for seven-and-a-half years.
And yet, house prices rose again in July to reach yet another record high, although the latest data, released by Nationwide, should be taken with a pinch of salt, if you are trying to assess what impact the UK’s decision to leave the EU is currently having on property prices.
According to the figures from Nationwide, the average price of home in the UK increased by 0.5% in July compared with June, and were up 5.2% on a year earlier, taking the average UK home value to £205,715.
The mortgage lender has suggested that increased economic uncertainty will dampen demand for property in the coming months, which could place downward pressure on property prices. But at this stage, there is no concrete evidence to imply that the continuing upward trend in house prices will change any time soon as a result of Britain’s pending exit from the EU; it will be at least another month or so until the main house price indices start to properly absorb the impact on home values during the early post-referendum period.
However, what the data from Nationwide does show is that even during times of economic and political uncertainty, the UK housing market remains strong, supported by a robust labour market and solid employment growth, not to mention historically low borrowing rates which look set to drop further following this week’s interest rate cut.
“The first evidence of the post-apocalyptic Brexit property market and on the face of it, not a lot to worry about with prices up 0.5% monthly and 5.2% annually,” said eMoov CEO, Russell Quirk.
But those of the country whose housing markets were struggling or readjusting earlier in the year, such as parts of London, will continue on what is often a “fairly lengthy path of price reductions to encourage buyers to return in numbers”, according to Miles Shipside, Rightmove director and housing market analyst.
He said: “In the run-up to and immediate aftermath of the referendum there was an understandable drop-off in buyer enquiries.”
Rise in overseas buyers
The Bank of England’s decision to cut interest rates this week will not just help maintain cheap borrowing levels for domestic buyers, but it will also weaken the pound further against major foreign currencies making assets in the UK, including property, cheaper for overseas buyers.
“It should be recalled that the dramatic bounce back in prime central London was supported by a weak sterling and falling interest rates during the credit crunch. Prices rallied within one year and outperformed almost all other financial indices,” said Naomi Heaton, CEO of London Central Portfolio, a major property fund.
Various agents report that significantly more overseas buyers are racing to snap up homes in Britain, and not just in London.
“We’ve seen a noticeable surge in enquiries from overseas buyers thanks to the drop in the pound’s value, with those buying in dollars and index-linked currencies delighted by how much more they can now get for their money in the UK,” said Ray Withers, CEO of Property Frontiers.
Carol Peett, managing director of West Wales Property Finders, concurred: “We have had more enquiries since Brexit with enquiries from ex-pats keen to invest in property here whilst the pound is low and numerous enquiries for second homes which would also be used for holiday letting.”
Fresh data from deVere Mortgages, part of deVere Group, which is one of the world’s largest independent financial advisory organisations, supports reports that international investors are poised to pile into the UK and take advantage of favourable property buying conditions.
The company state that mortgage enquiries from overseas buyers seeking to acquire property in the UK having surged by 50% since the Brexit vote.
“The pound has plummeted since the Brexit vote’s decision was announced. It is down approximately 11.5% against the dollar and 10.5% against the euro. As such, those buying in the UK with their local foreign currency are finding more value than before,” said Mike Coady, managing director of deVere Mortgages, which specialises in UK mortgages for expats and overseas buyers.”
Significantly, Coady also attributes the sharp increase in demand primarily to the fact that the ongoing fundamental strengths of British residential property investments remain intact.
Despite the sharp deterioration of sentiment among buyers, mindful of the far-reaching political, economic and social ramifications that Brexit may pose for the UK, our domestic economy will eventually recover, as will the housing market, as the core fundamentals remain the same, including the UK’s strong bedrock desire for homeownership.
“Traditionally, all major political events do tend to have a knock-on effect on the property market, however now that the result has been announced, transaction levels are increasing once again and the market is returning to its former vigour seen before the Europe question was ever presented,” said Martin Walshe, director of residential property at Cheffins.
Following the EU vote, the Council of Mortgage Lenders (CML) commissioned YouGov to undertake consumer research into tenure aspirations, and found that long-term homeownership ambitions remain strong, with 88% of adults insisting that they want to be homeowners in 10 years’ time.
When asked about their preferred tenure in two years’ time, 72% said they wanted to be homeowners.
“We cannot rule out the possibility that the Brexit vote may have dented the desire for homeownership [in the short-term], but the survey findings are in line with results stretching back over the last 30 years,” said Bob Pannell, CML chief economist (right).
The chronic national shortage in new housing supply has been well documented, with housebuilders building nowhere near the 300,000 new homes a year that the recent House of Lords Economic Affairs Committee said was needed just to meet existing demand for housing in this country.
Peter Andrew, deputy chairman of the Home Builders Federation, accepts that it is “too early” to understand all the implications of the Brexit vote for housebuilders, adding that “it is clear that after decades of undersupply we face an acute housing crisis and demand for new homes will remain high.”
The difficulty we have when trying to predict the future, is that we do not know what form Brexit will take. Although some market stability has come in the aftermath of Brexit, there are some clear signs that there will be further volatility as the UK’s two-year separation from the EU unfolds, which will have an adverse impact on activity levels in the property market. But the inherent undersupply of housing means that property prices are likely to increase further in the medium to long term, even if there is a dip in the short term.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno