Experts have warned that the UK housing market is set for a severe slowdown following the decision to exit the EU.
The momentous decision to leave the EU after 40 years puts Britain in unchartered territory.
During the run-up to the referendum economists predicted that house prices could come crashing down in the event of a Brexit vote.
The International Monetary Fund said exiting the EU could send property prices plummeting while analysis by the Treasury showed that up to 18% could be knocked off the value of people’s homes.
So with house prices at record highs across the country, what can we expect to happen in response to the result of the referendum?
Richard Donnell, insight director at Hometrack, said that the near-term prospects for the UK housing market now look “very uncertain”.
He said: “The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait and see the short term impact on financial markets and the economy at large.”
Nick Leeming, chairman at Jackson-Stops & Staff, said the result of the vote would likely have severe short-term consequences on the housing market as it adjusts to the uncertainty.
Leeming said: “We’ve already seen many would-be sellers put any decision to sell on-hold and now that a Brexit is confirmed we’ll likely see that indecision continue over the coming weeks. Both buyers and sellers will be waiting to see the effects and with the summer holidays now upon us, we can largely expect to have to wait until the new Prime Minister is appointed in October until we start to see any activity return.”
Despite the predictions of doom and gloom, Paul Smith, CEO of haart estate agents, believes that while there will be some short-term uncertainty, demand pressures will sustain prices over the long term.
Smith said: “We’ve grasped a huge opportunity for the UK and we have every reason to be confident about the long-term success of the property market. The underlying strength of property is sound, and it will remain a great investment because more people than ever are looking to get on to the ladder and there simply aren’t enough homes available.”
Interest rates
There have been fears that the Bank of England could raise interest rates in response to the pound falling in order to bring inflation under control.
The Bank has said that it will take “all steps necessary” to ensure financial stability as a result of the decision.
Bank of England governor, Mark Carney, said: “The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward.”
Many leading economists have forecast that the Bank could potentially cut interest rates in order to support the UK economy.
Calum Bennie, savings expert at Scottish Friendly, said: “Today sterling has plummeted and if it later needs to be propped up by increases in interest rates, this could result in higher mortgage costs.
“On the other hand, if the economy falters, the Bank of England could leave interest rates at their current all-time low or reduce them further to try and stimulate the economy. Holidaymakers will certainly be hit over the next few weeks with the higher cost of buying currency.”
Richard Adams, managing director of mortgage and protection network Stonebridge Group, said: “The uncertainty this vote to leave the EU delivers will undoubtedly affect the mortgage market. There are likely to be significant ramifications in terms of demand for purchasing property, and therefore securing a mortgage, at a time when demand has already dropped off.
“This will be further exacerbated depending on how the financial markets react, how lenders in turn react and in particular what might happen to rates in the future.”
London
It is widely expected that central prime property prices in London will be hit the hardest.
As a result of a Brexit vote, London could potentially lose its status as a safe haven for foreign investment. Foreign companies with European headquarters in the capital could also choose to relocate, reducing demand for both commercial and residential properties.
Donnell said: “House price growth is already weak and running in low single digits in central London areas and modest price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity. Even a sharp fall in the sterling is unlikely to attract overseas buyers in the near term.”
Richard Adams, managing director of mortgage and protection network Stonebridge Group, said: “We still expect prime London prices to continue falling and many of the tens of thousands of luxury homes in the pipeline to be mothballed as demand from all over the world fails to meet that potential level of supply.
“The rest of London will definitely be hit by a perfect storm of several factors hitting house prices which is great news for house buyers but not for investors and homeowners.”
