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House prices: How is the property market responding to Brexit?

Most analysts are more gloomy than they were pre-referendum, but it isn’t all bad news

The dust is still settling after the nation’s decision to leave the EU last week and markets are still in turmoil. But away from stocks, currency and bonds, one market that will be particularly concerning for many Britons is housing.

 

Were there any effects before the poll?

Estate agents reported that there was a drop in transactions in the run up to the referendum. The average estate agency branch had 304 house hunters in May, six per cent lower than in April and the least since November 2013, according to data from the National Association of Estate Agents.

“The EU referendum without doubt meant that May was a month of uncertainty for potential house buyers – demand dropped significantly and is currently at the lowest level we have seen in the last three years,” says Mark Hayward, managing director of the NAEA.

And what about since the result?

It is too early to say if the decision to leave the EU has had an instant effect on house prices and many estate agents are reporting “mixed” consequences. Some buyers are said to be pulling out or delaying decisions, while others are pressing on – and in the case of some overseas buyers, capitalising on the fall in the pound to boost offers.

It would be fair to say, though, that the mood among housing market observers is more gloomy on price growth than it had been before the referendum.

 “While the negotiations are months away in Brussels, they have already started in earnest between Britain’s homebuyers and sellers,” says James Pickford in the Financial Times.

“Some of the former are putting purchases on hold or pulling out entirely, spooked by the lack of clarity over what is to come. Agents and brokers are reporting buyers asking for a five to ten per cent discount, even after the seller has formally accepted an earlier offer.”

 

Are house prices going to plummet?

This is very difficult to predict as a number of different factors are at play. An initial stall in demand for property will have a knock-on effect, as many buyers may be worried about taking on a large mortgage when the country could be about to fall into a recession.

Some may also be concerned about job security if their company may lose trade or relocate as a result of the break with the EU.

“Housing market activity and prices now look to be at very serious risk of an extended, marked downturn following the UK’s vote to leave the EU. This is likely to weigh down markedly on economic activity and consumer confidence, which is not good news for the housing market,” says Howard Archer, chief economist at HIS Global Insight in The Telegraph.

Archer predicts that house prices will fall five per cent in the next six months.

However, there are positive signs in the housing market too. The mortgage market is looking particularly rosy – and it will only get more so if interest rates fall.

“As soon as Brexit was confirmed last week, the cost to banks of funding fixed deals started to fall,” says Paul Thomas in theDaily Mail.  “This is measured by so-called swap rates. In the wake of last Thursday’s referendum, swap rates fell by as much as one-third. These falls should soon be passed on to borrowers in the form of lower interest rates.”

It’s also important to remember that people always need somewhere to live. “In the long-term, being in or out of Europe simply does not reverse the fundamental driver of the mainstream housing market, namely that there are too many people chasing too few homes,” says Dan Gandesha, founder and CEO of Property Partner in Huffington Post.

Are there any signs of increased demand?

There have been early, counter-intuitive indicators that certain areas, such as the Central London property market, could actually see a boost due to Brexit.

“There are no signs of the British property market ‘falling off the face of the earth’ as some had feared it might if the UK voted to leave,” reports Hazel Sheffield in The Independent. “Estate agents have been swamped by calls from Chinese, Middle Eastern, Italian and Spanish buyers looking for a  bargain after the pound tumbled to more than 30-year-lows, making the exchange rate very favourable for foreign buyers.”

Even if house prices do fall it may not have a negative effect on the number of transactions.

Firstly, it could help those struggling to reach that bottom rung of the housing ladder. “First-time buyers would benefit from lower competition for housing, as house price and rental inflation would slow down,” says Gaby Trinkaus, a vice president and senior analyst at Moody’s.

Secondly, “the prospect of falling prices cuts both ways: if all buyers demand a discount, sellers may be forced to take less; but if this happens across the market, they themselves could reasonably expect to prise a discount from the sellers of their next home,” says Pickford.

 

House price growth jumped ahead of EU referendum

House price growth accelerated in June, even despite the fear – and then reality – of a Brexit victory at the EU referendum last week.

Average UK property valuations rose 0.2 per cent month-on-month, the same rate of growth as May, says Nationwide’s house price index.

However, they jumped 5.1 per cent year-on-year, up from 4.7 per cent last month, to £204,238.

Nationwide’s chief economist, Robert Gardner, said it was too soon to draw conclusions on how the market is reacting to the referendum result, notes The Guardian.

He added it would be equally difficult to assess “how much of the likely fall-back in transactions” is due to the distorting effects of this year’s stamp duty hike, which caused a rush of buy-to-let purchases to be brought forward to pre-April.

Elsewhere, figures from the National Association of Estate Agents showed a slowdown in buyer demand in the lead up to the EU referendum in May. The number of registered house hunters per estate agency branch hit a three-year low, reports FTAdviser.

What can we glean from this data? Not much conclusively, but it does reaffirm that house prices had continued to rise, despite a drop in demand prior to the poll. This in turn suggests the paucity of available property remains the defining characteristic of the market.

As this supply imbalance is unlikely to improve any time soon – in fact, there are suggestions house-building might now slow for a period – some argue prices might not crash in the way that had been predicted.

Gardner said: “Even if demand does soften a little, there’s going to be underlying demand. There are so few properties on the market.”

Gardner also echoed talk of a “Brexit bubble”, with a falling pound bringing discounts to international investors, which could mean that even in London, which is more reliant on overseas buyers and has seen the biggest rises in recent years, house prices might not fall as had been expected.
Fionnuala Earley, the chief economist at Countrywide estate agent, told the Belfast Telegraph that anecdotally, there had been a “mixed response so far to the vote, with some overseas buyers increasing their offers on properties… some first-time buyers completing purchases and some people saying they will ‘wait and see'”.

It was “too early to know what the full impact of the vote to leave the EU will be on the housing market and a clearer picture will emerge in the coming months”, she added.

House prices: Brexit discount for foreign buyers hits £40,000

Overseas buyers are saving more than £40,000 on London property prices thanks to Brexit, according to estate agency Stirling Ackroyd.

In a statement released on Friday afternoon, after the pound slumped more than seven per cent against the euro following the UK’s vote to leave the EU, the firm said the effective price cut for buyers from eurozone countries had reached eight per cent.

Seven months ago, the average London property was the equivalent of a record €630,100, its figures show. That now stands at €579,200, following a slow down at the top end of the market and the slump in the pound.

At current prices, the €50,300 equates to a slide in pound terms of £42,265. Taking into account the depreciation in the pound, euro buyers would now pay £40,900 less, Stirling Ackroyd says

Managing director Andrew Bridges said the fall to some extent masked a drop of around 2.4 per cent for prices in the top 25 per cent of the London market, but that it still equated to a major incentive for overseas buyers.

“Overnight, London has become a more affordable global property hotspot, particularly for those paying in Euros,” he said. “After the shock of the referendum, calm will return to the market and people will see the bright lights of London are undimmed.”

Predictions of a rush of foreign bargain-hunters is a counterweight to a string of forecasts that house price growth will significantly soften – or even head into reverse – after the referendum result, as Brexit uncertainty prompts an economic slowdown.

The Financial Times says estate agents such as Chestertons and property developers such as Galliard Homes had seen buyers pull out of sales on Friday after the Leave win was confirmed.

Gareth Norris, a Sussex-based mortgage broker with Lyons Finance, said two clients had cancelled their purchases since the referendum.

“One client said they weren’t going to go ahead because they were worried about negative equity. The other one said they were going to postpone because they wanted to be in a more stable position before committing,” he said.

 

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