Over the weekend I have been spending time with the media to help answer people’s questions on what will happen to the property market now we are on a path to Brexit.
The reality is that, while we are in an unprecedented situation, there have been ‘shocks’ to the country before, such as the Iraq War and the credit crunch, so we can draw on what happened on these occasions to help us understand what might happen now.
On Friday I sent out my thoughts on what I think would happen and why:-
What will happen to the property market now we are going to Brexit?
Today I’ve collated information from:
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George Osborne, Chancellor of the Exchequer says…
So far today, George Osborne has made some announcements which, in summary, said:
Britain has the strongest major economy in the world
Employment is at a record high
Budget deficit still forecast to be reduced from 11% to 3% of national income
Banks are 10 times stronger than they were at the time of the credit crunch
Our economy is about as strong as it could be to cope with Brexit
We must deliver on the result of the referendum and Britain’s economy needs to adjust to the ‘new economy’ and three challenges we face:
Volatility in financial markets – robust contingency plans are in place including £250 billion of funds available to support banks. Britain’s financial system will help, not contribute to shocks, as it did in 2007/8.
Uncertainty while creating a new relationship – we won’t trigger Article 50 until we are ready and in the meantime “there will be no change to the way people travel and work”, but we understand firms will “pause” when it comes to investment and recruitment. He reminded everyone “we are open for business”.
Long term economic relationship with Europe – we will have to determine and negotiate these terms and put in place the “strongest economic links”. Reiterated that Britain is an “open and tolerant country”.
“We start from a position of hard-won strength”.
Two Q&As were asked of the Chancellor of the Exchequer:
Will there be an emergency budget?
There will be an adjustment in our economy which will impact on our public finances, but we will wait for a new Prime Minister before we do this.
Will there be a recession?
There would be a range of impacts depending on what happened with negotiations with the EU and he will do his best to mitigate the impact.
But what about the impact on the property market?
So what happens next to the housing market? Lucian Cook of Savills and Richard Donnell from Hometrack and their teams are people I respect, so I sought their views on the property market following the Brexit announcement:
Savills view from Lucian Cook, UK head of residential research
“What we do know from lead indicators, such as the RICS survey, is that uncertainty pre-referendum impacted on new buyer enquires. A continuation of that uncertainty is likely to pull back price growth and transactions in the short term.
“The prospect of an increase in mortgage interest rates and a reduction in wage growth is expected to create greater affordability pressures over the medium term, particularly in London where borrowers have stretched themselves further. However the precise impact depends on how severely these affordability drivers are affected.
“The prime markets, that typically are more volatile, may well see a greater short-term impact. However, along the line, a fall in the value of sterling should bring some international buyers back into the market, albeit with potentially less gusto than in previous downturns given higher stamp duty costs.”
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Hometrack, Richard Donnell
“The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as abuyers adopt a wait and see the short term impact on financial markets and the economy at large.
“At present we don’t expect sizeable house price falls, the greatest impact will be on market activity.
“We expect levels of new housing to be scaled back, tightening supply and supporting prices until such time as the outlook for demand becomes clearer.
“Modest single digit price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity and weaker investor demand.
“Across the whole London market, 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.”
Other views that have come out of the press are:
Bank of America Merrill Lynch analysts predict a 10% price correction in the next year – quoted in FT
Galliard Homes, London's largest private house builder, sent Business Insider a statement this morning saying that a Brexit — Britain leaving the EU — would mean “the London economy will falter” and “the uncertainty it would cause will generate a value drop in the property market in a very short time”. – Business Insider
What feedback is there from agents over the first Brexit weekend?
Having spoken to mortgage brokers and to agents over the weekend, their feedback is:
Few have pulled out of existing deals
Some people are contacting agents thinking there will be an opportunity to negotiate some bargains and more deals available
Drop in sterling makes property more attractive to foreign investors
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What will happen to interest rates and mortgages post Brexit?
Most feared an interest rate rise following Brexit which would drive mortgage rates up and reduce affordability – meaning fewer people move, leading to the risk that more people could end up selling their property than wanting to buy and that’s what drives prices down.
At the moment, there are various views on what could happen, but the reality is many people have already fixed their mortgages, so if that’s you, just double check with your lender/broker if there are any circumstances that may allow them to raise their rates, irrespective of what happens to interest rates.
This is what experts are saying could happen:
Mortgage rates, irrespective of what happens to interest rates, may rise as banks are hit (eg their shares fell), especially for high loan to values
If interest rates go lower, mortgage rates may fall, according to some people, including Ray Boulger, mortgage expert at broker John Charcol. He told various press: “If you are looking for a mortgage and you want a fixed rate, I would hold off for a week or two as we will see rates fall.”
Things could just stay the same
A good write-up on this is from Sally Hamilton from This is Money and the suggestion is:
“A five-year fixed-rate loan, although more expensive than a two-year deal, gives more certainty during the potential rollercoaster ride for bank base rate over the next two years.”
What next? Let me know your fears, hopes and questions!
Are you concerned about the impact of the referendum result on your property portfolio, your home’s value or your next purchase? I’ve already received lots of questions and am preparing my answers, but do send me yours, too, and I’ll do my best to address them. Contact us here.
