There remains a high level of speculation over the impact of Brexit on house prices in the UK and most notably London property. While it may be too early to discern its likely long term impact, in the past few months following the initial shock of the UK’s vote to leave the EU, we are witnessing strong signs that initial fears that the vote would cause a downturn to the housing market have been defied, and confidence is now returning to the market.
So what is happening to house prices?
The improvement in demand indicators provide grounds to believe the prime central London market is set for at least a modest recovery in trading volumes, whether this translates into significant price rises is less clear, although according to the RICS who have in the past week published a report on the matter, house prices will rise by 3.3 per cent a year for the next five years. They state conditions in the market have “settled down” after the uncertainty of the Brexit vote. Coupled with this, the average house price of a home in the capital inched up one per cent in July to £484,716, making it 12.3 per cent higher than a year previously, according to latest data from the Land Registry.
Another positive message reported in recent weeks and one that reinforces the belief that Brexit has had a much less impact than initially feared on UK house prices, are reports that residential sales activity in central London were stronger this August than last year. In addition, despite the lull which typically occurs in the summer months, the number of new prospective buyers rose by over 20%, with the number of properties under offer rising at a similar rate during the same period. It is also reported that there was a marked increase in enquiries and viewings by up to 50%.
As we have previously reported, the continued lack of supply specifically in the London market means that the resilience of the housing market against political and economic forces is likely to be maintained for the foreseeable future. This structural mismatch between demand and supply well not be balanced any time soon for what we consider to be a number of reasons on both sides:
An insurgence of foreign buyers who have either already changed up currency when the sterling hit record lows, or who are intending to purchase over the short to medium term. UK property is now 10% cheaper for this group of buyers.
For domestic buyers, fear that Brexit would lead to tougher lending measures from banks have not materialised. 95% mortgages are still widely available for first time buyers and those with a smaller deposit pot, and continued low interest rates without a sign of an increase in sight are giving this group of buyers the confidence to continue purchasing – whether for investment or self-use.
Uncertainty following the EU referendum has dampened confidence of many UK home builders, leading to greater risk aversion, and encouraging a wait-and-see approach to decision making. Coupled with high land prices and construction costs, there has been lowered activity in the housing construction sector restricting supply across the board.
As with the broader economy, any profound change in the housing market will only become clearer over the next year or two, depending on the outcome of a protracted period of negotiations between the EU and the UK once article 50 is invoked.
In the meantime it seems the UK housing market remains in a healthy state to support growing house prices, albeit at a more healthy level than what we have seen in recent years.