Chan­cel­lor sets out hous­ing mar­ket fears over EU vote

Financial Mirror (Cyprus) - - FRONT PAGE -

He also added to the list of those warn­ing that it would also af­fect the home lend­ing mar­ket mak­ing mort­gages more ex­pen­sive. On this one he is hot on the heels of the IMF which has warned that mort­gage in­ter­est rates would also rise be­cause of fi­nan­cial mar­ket in­sta­bil­ity, mean­ing fewer peo­ple be­ing able to get a mort­gage and mort­gage costs ris­ing for all.

And this sits along­side warn­ings from Vir­gin Money’s Chief Ex­ec­u­tive, the CEBR, S&P, Fitch and Deutsche Bank about the po­ten­tial neg­a­tive im­pact on Bri­tain’s hous­ing mar­ket from a vote to leave the EU.

The Chan­cel­lor said fi­nance min­is­ters from other G7 coun­tries at­tend­ing the sum­mit in Ja­pan where he made his state­ment con­firmed that in their as­sess­ment, leav­ing the EU could cause sig­nif­i­cant fi­nan­cial mar­ket tur­bu­lence, af­fect­ing fam­i­lies and busi­nesses.

The Chan­cel­lor also chal­lenged the idea that ne­go­ti­at­ing a new re­la­tion­ship with the EU would be easy if the UK votes to leave, warn­ing in­stead that it would be a long, costly and messy af­fair. In the com­ing days, the Trea­sury is go­ing to pub­lish its anal­y­sis of what the im­me­di­ate im­pact will be.

How­ever, crit­ics point out that any fall in prices is only com­pared with where they would have been if there was no vote for Brexit. The in­de­pen­dent Of­fice for Bud­get Re­spon­si­bil­ity pre­dicts a rise of 9.4% over the next two years and a fur­ther 5% over the fol­low­ing year.

How­ever, most home own­ers have seen the price of their home rise by 9% in the last 12 months, so the gov­ern­ment forecast ac­tu­ally sug­gests that homes would be worth be­tween 0.6% and 8.6% less in cash terms than they are now.

In­deed, for­mer Cab­i­net Min­is­ter Iain Dun­can Smith, a prom­i­nent cam­paigner for the UK to leave the EU, likened Os­borne to the chil­dren’s fairy tale char­ac­ter Pinoc­chio whose nose grows longer the more lies he tells.

How­ever, the short term im­pact is al­ready be­ing seen in the run-up to the vote on June 23. Es­tate agents and let­tings agents are re­port­ing a slow­down in sales and a wai­t­and-see at­ti­tude. Lawyers are re­port­ing that in­vestors in com­mer­cial prop­erty are adding Brexit clauses to con­tracts al­low­ing them to pull out of pur­chases if the out­come is not favourable.

On top of this, the Na­tional As­so­ci­a­tion of Es­tate Agents (NAEA) and the As­so­ci­a­tion of Res­i­den­tial Let­tings Agents (ARLA) warn in a re­port com­piled with the Cen­tre for Eco­nomics and Busi­ness Re­search (Cebr) that while rents and prices could fall, this is not all bad news as it would help first-time buy­ers, es­pe­cially in Lon­don.

What is wor­ry­ing about this re­port is that it fo­cuses be­yond val­ues. It points out that it could af­fect cur­rent plans to build hun­dreds of thou­sands of new homes due to the po­ten­tial of greater re­stric­tions on for­eign work­ers com­ing into the UK would re­sult in a short­age of con­struc­tion work­ers.

In­ter­na­tional busi­nesses are post­pon­ing in­vest­ment in Bri­tain in the wake of EU un­cer­tainty, a new pa­per by the Royal In­sti­tu­tion of Char­tered Sur­vey­ors (RICS) has re­vealed.

The RICS EU Ref­er­en­dum Pa­per which ex­am­ines the pros and cons of the UK re­main­ing and ex­it­ing Europe in­cludes new data show­ing that there has been a steady eas­ing in in­ter­na­tional de­mand for UK of­fice, in­dus­trial and re­tail prop­erty since the ref­er­en­dum was con­firmed in Q2 2015.

The de­mand in­di­ca­tor among in­ter­na­tional in­vestors for UK com­mer­cial prop­erty is now at its low­est level since RICS records be­gan in 2014 with just 5% of mem­bers sur­veyed re­port­ing in­creased in­ter­est from over­seas com­pa­nies over the last three months. This is a con­sid­er­able drop from Q2 2015, when the fig­ure was at 36%.

Un­cer­tainty caused by the EU ref­er­en­dum has been cited by 38% of RICS mem­bers work­ing within the sec­tor as the rea­son why ma­jor in­ter­na­tional re­tail­ers and other busi­nesses have been ner­vous of investing in Bri­tain.

Should Bri­tain leave the EU, 43% of re­spon­dents felt that it would have a neg­a­tive im­pact on the com­mer­cial prop­erty sec­tor and only 6% said a Brexit sce­nario would

Re­duced mi­gra­tion would also af­fect the pri­vate rental sec­tor. Cur­rently, pri­vate rent­ing is a more pop­u­lar choice among UK residents born in other EU coun­tries than for UK born in­di­vid­u­als. The re­port says that if mi­gra­tion re­duces the flow of renters from Europe, de­mand will weaken, which would put down­ward pres­sure on rent costs.

What is clear is that it is not as sim­ple as say­ing that Brexit would have a pos­i­tive or neg­a­tive ef­fect on the prop­erty mar­ket. While a fall in prices and rents might favour many, mort­gage costs are also likely to rise, off­set­ting any ben­e­fit from lower prices and more sup­ply.

What­ever hap­pens, there will be a slow­down show­ing up in pub­lished fig­ures for April, May and June in terms of prices, sales and rents. What hap­pens af­ter that will not be known un­til the ref­er­en­dum re­sult is in. Roll on June 24.

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