Brexit and The Housing Market
The short answer is nobody knows. The long answer, and it is long, is that Brexit will have several potential effects on the UK’s housing market and that there is no one guarantee on how this will affect you.
Short Term Fluctuations
In the short term Brexit is likely to cause a flattening of price growth and may even cause a slight decrease in average house prices. This reaction will be caused by uncertainty in the economy post Brexit, this uncertainty will remain until full details of the ‘exit’ plan and the UK’s international role outside the EU comes to light.
In a recent publication by the Royal Institute of Chartered Surveyors (RICS), as one of the first important surveys post the referendum result, it has found the in UK overall house price growth has moderated, but remained positive.
Additionally, RICS reports that the expected growth in house prices in the UK over the next 12 months has dropped from 54% in May to 0% in June and has gone negative in London and East Anglia. The individual comments of surveyors from around the country provide a very varied set of opinions.
Many have noted slowdowns in the market and mostly blame the referendum for this, others have seen no changes in the markets and a few have actually had increasing demand.
Another comment which resurged many times was there is a large shortage of stock on the market at the moment which decreases the level of new instructions going out. Other commentators have implied that sporting events (Euros and Wimbledon) cause the market to slow down and we are the end of the normal house purchasing season as we move into the summer holiday period. In all this means that it is too early to tell where the residential property market is heading over the next few months.
The Housing Crisis Is Not Solved
An official parliament report estimated that around 232,000 and 300,000 new homes need to be built yearly to keep up with demand, this figure, is around two to three times higher than current supply.
Long term trends in the house price to income ratio show that in 2015 average house prices were around five times higher than average wages whereas in 1995 the ratio shows house prices were only two times higher than average wages.
Even with the 2008 housing market crash and the resulting global financial crisis house price growth has remained strong and quickly surpassed the pre-crisis levels, in the UK this growth in price can partly be attributed to the shortage of housing.
Another key element contributing to the housing shortage is population growth. Brexit despite what some may believe, will likely have little impact upon net migration, nor the natural birth rate. This obviously directly contributes to long term housing demand. With this in mind, Brexit is unlikely to affect the long term trend of price growth in housing.
Foreign Investors
With the pound falling to a 31-year low against the dollar this may encourage foreign investors into the UK market. Although, foreign investors account for only a small portion of the residential property markets over the UK in general, London of course has a much higher ratio of foreign ownership. Some hope that these investors may be able to provide buoyancy for a market heading for a decline.
A falling pound increases the buying power of these foreign investors encouraging them to enter the market looking for a cheap deal on a more than likely to increase in value, over the long term, asset. Furthermore, with the current infrastructure investment currently occurring in the North, specifically the HS2 cities like Manchester, have seen a surge in foreign property buyers.
First Time Buyers
A flat or declining market provides an excellent opportunity for first time buyers to get onto the property ladder. Pre-Brexit vote Vice President and Senior Analyst, Gaby Trinkaus, at Moody’s explained that first time buyers would benefit from Brexit via a potential curb in immigration, which would decrease housing and rent demand relieving some of the current pressure on the market. Moody’s claims that Brexit will be the positive news first buyers are hoping for because they have become largely priced out of the market, which is especially true for those looking in the South East and London markets. However, the negative for first time buyers is the fact that mortgage lenders are likely to reducing the loan to value ratios that they will loan in anticipation of volatile markets. This may require first time buyers to obtain higher levels of deposit values and/or have higher incomes than were previously required.
This article is intended for general information purposes only and shall not be deemed to be, or constitute legal advice. Newnham & Jordan Solicitors cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article or any external articles it may refer or link to.
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