Since the nation voted for the UK to leave the EU last year, the economy has been thrown somewhat into doubt. And the property market is no exception. We’ve analysed the effect Brexit has had on the property industry since the landmark referendum in June.
House prices
Prior to the vote for the EU Referendum, then-chancellor George Osborne warned that a Leave vote would result in a fall in house prices, and indeed, the latest official government figures show that his concern was not unwarranted.
The annual house price rate of growth fell from 9.7% in June to a “robust” level of 8.3% in July, according to the Office for National Statistics. However, despite the slowdown, the 8.3% growth rate is the third highest measured so far this year. On a monthly basis, property prices edged up 0.4% between June and July.
There have also been predictions from nationwide estate agents Savills, that Brexit will result in the end of British house price growth next year following a four-year long period of increase and lead to a slump in transactions. Savills also predicts that transactions will fall by over 16% to just over 1 million in 2018.
Brexit has hit the capital’s house prices particularly hard, with prime London property hotspots falling at the fastest rate in seven years. Chelsea saw a 10% drop in October, according to estate agents Knight Frank. Prices in the most expensive boroughs fell by 2.3% in October, the biggest drop since the same month in 2009, when valuations slumped 3.2%. Reuters reported that August and September saw drops of 1.8 and 2.1% respectively as activity fell sharply in the wake of the Brexit vote at the end of June.
Property sales
In the wake of Brexit, estate agents report a drop in buyer interest and a reduced number of people buying and selling homes. While the market has remained fairly stable, the Financial Times warns that the British housing market displays serious structural problems that have yet to be addressed.
In July, the first month after the EU referendum, the number of completed sales in England fell by 28% to 66,870 compared with 93,040 in July 2015. While sales are still steady, transaction figures published by HMRC in October show that sales of both residential and commercial properties are down. There were 93,130 residential transactions rubber-stamped during September, down 4.3% on the typically quiet August one month earlier.
In London, which voted heavily in favour of Remain, property sales are particularly low, with the number of new properties on the market down by over 10% on last month, and transactions down by over 20% on last year.
Paul Smith, CEO of haart estate agents, told Property Reporter, “The current supply shortage has seen a jump in London prices compared to last month, but unlike normal times this isn’t a sign of a ‘hot’, active market. It is a blip undermined by the fall in transactions – in reality nobody is winning in the current market. The ‘Psychology of Brexit’ is holding the market back, and the government must act to avoid this dip becoming a long-term problem.”
The uncertainty caused by Brexit is not the only reason for the slow down in sales; the change in stamp duty introduced in April for people buying second homes has also had an impact on the market. CityAM has highlighted that this “caused a spike in volumes during March as prospective buy to let landlords rushed to beat the month-end deadline and save thousands of pounds in tax. At the time, market experts said it would distort the residential market for the rest of the year, making interpretation of the figures a little tricky.”[7]
With the break in sales activity since June and a lack of property available, property rentals have surpassed sales in the UK for the first time since 1930s, according to Countrywide. Johnny Morris, research director at Countrywide, said: “As some would-be buyers and sellers sit on their hands, Brexit-induced uncertainty has continued to boost the rental market … September saw record activity, with increasing numbers of lets agreed and tenants choosing to renew their contracts. On current trends 2017 could be the first time since the 1930s that more homes are let than sold.”
Mortgages
Following the Leave vote, the Bank of England cut interest rates to 0.25% in hopes to stimulate the market. However, the number of mortgages handed out to homebuyers in August fell by more than 20% compared to last year, according to the British Banks Association.
“While mortgages become more affordable and the cut will help those already in their own homes, it does little for those looking to take a first step on the housing ladder as a shortage of properties and unaffordable prices are putting home ownership beyond reach for a growing number of people,” said Andrew Hagger of research firm Moneycomms.co.uk.
Mortgage approvals increased in September after reaching a 19-month low in August, but remain much lower than a year ago, which the Financial Times says suggests activity in the UK housing market remains subdued.
“Mortgage approvals picked up slightly this month,” Rebecca Harding, chief economist of the British Bankers’ Association, told the Financial Times. “But the housing market continues to shows signs of underlying weakness.
“Consumers are increasingly using short-term borrowing to take advantage of record-low interest rates. This trend has accelerated since the Bank of England cut rates in August,” said Dr Harding.
First-time buyers
Many property experts heralded 2016 as the year of the first time buyer. However, home ownership has dropped to a thirty-year low, and many younger people have been priced out of the market.
First time buyers are still struggling to take the first step onto the property ladder as house prices continued to rise making it hard to save enough for a deposit combined with a shortage of houses on the market.
Miles Shipside, director at Rightmove, said an increasing number of people are being cut off from home ownership following the EU referendum. “Those who do not own a home and arguably have the greatest housing need are now finding it harder to achieve their goal in the post-Brexit-vote aftermath,” he said.
“The rising tide of prices is marooning more and more first-time buyers, out-stripping their ability to meet stricter lending criteria and afford the required deposits and monthly repayments.”
Buy-to-let
In a bid to free up more housing, particularly flats and smaller homes that are desirable for first-time buyers, the government amended stamp duty regulations on second homes in April prior to the Brexit vote.
However, government efforts to diminish the buy-to-let market have not been successful as fewer prospective landlords will buy property, so fewer homes will be available to rent, consequently driving up rent prices.
Savills predicts that those with buy-to-let properties could see rental prices soar by as much as a fifth over the next five years as a result of Brexit uncertainty and prices are likely to increase by just 13% cumulatively by 2021.
Yet despite Savills predictions, property portal Rightmove has evidence to suggest that the buy-to-let sector is bouncing back despite the punitive tax reforms with enquiries from would-be investors rising by 30% between June and September.[13]
Foreign investment
The Brexit vote saw the pound’s value tumble, which prompted lots of overseas investors to buy up property in the UK, particularly in London. Buyers from the Eurozone gained a €50,900 (£42,000) discount on the average London house price in the wake of the referendum result, according to estate agent Stirling Ackroyd.
As some UK buyers are finding themselves priced out of the housing market, foreign investors are looking to snap up a bargain. Changes in stamp duty mean that they are also now interested in cheaper properties – pitting them head-to-head against first-time buyers who hope to get a foot on the property ladder.
Chinese investors are particular keen on the UK property market. Charles Pittar, chief executive of Juwai.com, a company that calls itself China’s largest international real-estate website, said that he notives an acceleration in investment following Brexit after the sterling came down more than 10%. And he predicts that demand will only increase. “It’s a big market now, but it is likely to be anywhere from two to four times the size in 10 years’ time… This is just such a huge market.”
Brexit certainly has shaken up the British housing market, but not burst the bubble, just deflated it a little. Once the dust settles, confidence should return to the housing market. There’s sure to be more impact once Article 50 is triggered next year, but for now with the interest rate at an all time low, there is hope that the market will be stimulated. This, combined with the government’s plans to build 200,000 new homes a year to ease the housing shortage gives first-time buyers more of a change of getting on the property ladder. We look forward to seeing what 2017 holds for the property market…