The key comments coming out of initial post-Brexit news regarding housing were that we could expect to see a flatlining of prices and in some areas, a decrease. A year onwards and this is only partially true. Prices in the London market have come down, especially in those central areas where the market was already at extortionate heights. In the City of London, average house prices from June 2016 to June 2017 have fallen by more than 20% to £723,576.
However, stats for the UK as a whole show that from June 2016 to June 2017, average house prices rose by £10,000 to £223,257 according to the Office for National Statistics, with similar statistics being reported by Halifax. After Brexit, many reported about the potential opportunities for first-time buyers to get onto the market due to the forecasted flatlining prices; including Moody’s Vice President and Senior Analyst Gaby Trinkaus. Currently what is being reported by Paul Smith of Haart estate agents, is that first-time buyer enquires are down 20% in the last year, however, Haart are a mostly based London estate agency, therefore, this may not be representative of nationwide enquiries.
Despite the uncertainty in Brexit negotiations and what a post-EU UK economy will look like, the housing market has pushed onwards and upwards even through a drop off in affordability; due to inflation outstripping wage growth and squeezing real incomes, has occurred. The housing market has been kept underpinned by a large amount of undersupply, low unemployment and low mortgage rates. In the short-term, I fully expect this to continue despite the Brexit uncertainty.
The Bank of England may implement a modest increase in base rates towards the end of 2017 to try and bring down inflation, but the current rhetoric implies this will not likely happen until early 2018 at the soonest. Of course, this will take the “heat” out of the economy; mortgage rates will rise and unemployment may be affected, but inflation will fall, helping the affordability factor. Furthermore, rising base rates can often be seen as a move to restore economic confidence and give signals to lenders as well as home owners that the worst has passed, therefore, leading to more mortgages and potentially more houses on the market. However, it is simply too early to tell what direction we are heading in and how these signals will be interpreted.
In summary:
- Housing prices have, on average, grown by £10,000 in the year since the Brexit vote
- London house prices have been coming down slowly
- First-time buyers are still struggling to enter the market
- Undersupply, low mortgage rates and low unemployment are underpinning house prices and this looks set to continue
- Base rate decisions by the Bank of England will play a large role in the future direction of the housing market
