In the lead-up to the UK referendum on EU membership there was much speculation about the impact Brexit would have on property prices, with dire warnings sounded across the board.
In the wake of the surprise Leave vote, there were countless news articles about collapsing property sales and even more drastic warnings about the future of the UK’s housing market, with some predicting bigger falls in value than were seen in the global financial crisis.
Understandably, many property investors are concerned about the future so we’ve put together a round-up of what we know so far.
What the indices say
As many have pointed out, it’s too soon for any house price changes occurring as a result of the vote to be fully reflected in any of the main indices, although most were already pointing to a slowdown in the market ahead of the vote due to the impact of the stamp duty surcharge in April.
Nationwide’s June House Price Index reported a 0.2% month-on-month rise in June, along with a 5.1% rise on the year, while Halifax put June’s rise at 1.3% compared to May and the April-June quarter up 8.4% on the previous year.
However, these leading indices take into account only a small period of time after the vote — Rightmove’s figures provide a slightly more comprehensive picture, taking into account the two weeks before and after the referendum. It reported a 0.9% drop in asking prices during the period.
Although Rightmove said the falls were broadly in keeping with the traditional summer lull, the RICS UK Residential Market Survey for June 2016 reported not only a third successive month of a drop in housing activity, but also that 26% more respondents anticipated a further drop in sales across the UK over the next three months — the most negative reading for near-term expectations since 1998.
What’s going to happen
According to Société Générale, house prices could fall by up to 30% in London, with falls of 40-50% possible in the most expensive London boroughs.
The key point here is the mention of the ‘expensive’. The truth is that in many ‘prime London’ areas prices have been falling for some time, with many commentators attributing a noticeable drop-off beginning in late 2014 to stamp duty changes that made properties over the million pound mark substantially more expensive.
However, million pound properties are hardly the staple of buy-to-let investors with London property portfolios, even those for whom yield takes a back seat to capital growth. They are also hardly the staple of the first-time buyers or second-steppers who are likely to purchase buy-to-let properties being sold off by investors, so it’s likely to be the non-prime market that’s of more concern to investors.
In this respect the Rightmove data mentioned above points to a sharp divide between prime and other London properties — while it reported a 2.3 fall in asking prices for Inner London properties, those in Outer London were simply flat on the month.
The truth is that thus far, there’s nothing concrete to show there’s been an actual fall in house prices, merely a slowing down of prices rises, a trend that has been underway since the new stamp duty surcharge was introduced in April. That’s certainly not to say falls won’t happen, but if they do, there’s another thing people have started to speculate about that may counter any prices falls for those taking a long-term view on property…
First Brexit, now ‘Brental’
It stands to reason that at this early stage in the EU exit negotiations we’re unlikely to see a mass exodus of people from the UK, and if some are to be believed any potential end to free movement will cause a temporary influx. This brings us to the other important area of the property market that concerns investors: rental prospects.
Although speculation about house prices is deterring many from buying, everybody still needs somewhere to live and that’s good news for landlords as it’s increasing the demand for rental properties, so much so that one commentator remarked that the market was ‘going Brental’.
There’s also more good news for buy-to-let investors when it comes to mortgages…
Prior to the referendum, George Osborne and Mark Carney both warned that Brexit would lead to a rise in interest rates, and consequently escalating mortgage rates. The reality has been rather different, with Osborne now no longer chancellor and Carney hinting rates will in fact fall in the imminent future.
Meanwhile, many mortgage providers, including buy-to-let lenders, are cutting interest rates on many of their products even without an official rate cut. Unfortunately, the trend towards buy-to-let lenders increasing the rental cover requirements for individual borrowers to 145% is gathering pace, with both TSB and The Mortgage Works increasing their percentage up to that level over the past month.
However, for those willing or able to invest using limited companies, some recent statistics from Mortgages for Business should provide some encouragement. The broker firm said that in the first half of this year, 30% of all buy to let loans completed were for limited companies, and in response to the surge in demand, lenders were increasing the amount of products available for limited companies.
There’s clearly a lot of uncertainty surrounding the property market at the moment. While it’s impossible to predict exactly what will happen to house prices in the near future, it’s safe to say that the fallout of the Brexit vote has presented some opportunities for property investors prepared to wait out the storm.
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