One of the key financial questions facing the UK now it has voted to leave the European Union, is what will happen to the housing market and more importantly, will house prices fall or rise?
There were widespread predictions during the referendum campaign that the economic shock of Brexit would drive house prices down. Even The Treasury and the International Monetary Fund predicted a fall in the next couple of years. However, this was based on the expectations that the cost of mortgages would increase. Due to these pre-referendum indications, traders believed the UK housing market could be set for a slowdown. As a result, banks and developers, along with telecommunications and airlines, took substantial hits on the FTSE 100.
Richard Donnell, a director at property consultants, Hometrack, reported “The immediate impact is likely to be a fall in housing turnover and a deceleration in house price growth as buyers adopt a wait and see the short-term impact on financial markets and the economy at large.” Richard’s comments appear to suggest a slowing, rather than reversal, of valuation inflation in most areas.
Galliard Homes, one of London's largest private house builders also agreed. “The London economy will falter and the uncertainty it would cause will generate a value drop in the property market”.
However, there are those who argue that even high-value property may not see a drop in prices. London estate agent Peter Wetherell, whose company specialises in luxury homes, said “the Leave vote will result in a “Brexit bubble” as overseas buyers take advantage of the plummeting pound.”
David Brown, the head of agency Marsh & Parsons, added that “regardless of the referendum result, there was still plenty of pent-up demand in the wider UK housing market and a leave vote doesn’t change that overnight”.
In the short term, we at H Tiddy are advising both sellers and buyers that we could have a wave of increased activity over the next few months for the following reasons:-
Firstly, UK house prices will be bolstered by the London market, due to foreign investors taking advantage of the lower pound to invest in property.
Secondly, with the likely ongoing turmoil in the stock markets over the next 6 to 12 months, UK investors will pull their money out of their bonds and share portfolios etc and invest into bricks and mortar.
Thirdly, the Bank of England might reduce interest rates, thus sustaining confidence and stability in the housing market.
There has been annual house price growth in our area since 2009. Historical data proves that over a period of a decade, the market has a peak and a trough. Irrespective of the country voting “in” or “out”, the likelihood of further economic austerity measures, and a slow down in the London property market, I feel that 2017 will grow, but not at the same levels we have seen over the last couple of years. The National Association of Estate Agents expect a similar outcome. For example, pre-Brexit, for 2017, they predicted a 4.4% rise in average UK house price if we remained in the EU, compared to 4.1% if we voted out. In 2018, the NAEA predicted 4.2% Bremain and 4.1% Brexit.
Hot spot areas scattered around Cornwall have historically remained relatively unscathed from a “buyers” housing market. With the cost of overseas holidays anticipated to increase, and with interest rates remaining low, 2017 will still create a good level of business turnover for us at H Tiddy. Many permanent lifestyle change and second home buyers will choose to live and invest in property in our beautiful area. Many second home buyers will holiday let for an income from the property as well as owner book at intervals during future years to cater for the family holiday.
Due to lowering share prices and a likely short term future shortage of trained craftsmen, major developers may choose not to commence building on their land bank sites, thus causing a further shortage of housing stock. Under the economic laws of supply and demand, demand should still outweigh supply, which will increase average house prices. Despite the implementation of monthly mortgage costs no longer being a taxable deduction, UK investors will still take advantage of competitive buy to let mortgage products, powered by increasing private rental costs correlated against the lack of property stock available.
Based on historical house price indexes and the 30 years plus I have personally experienced working within the Cornish housing market, I have no hesitations that there will be future property house price growth.
To quote Russell Quirk, the founder of eMoov, “ The value of your home ?... It’s as safe as houses regardless…”.
Written by: Mark Willson, Director, H Tiddy, St Mawes.