Brexit doom and gloom unlikely to hit housing markets in short term
It is still too early to know with any certainty how the UK residential property market will be affected by the decision to leave the European Union with analysts notably reluctant to call what is ahead.
What is clear, however, is that in the run-up to last month’s polls, there was a slowing in the markets due to uncertainty over how the vote would go. Now that we know the outcome, things seem remarkably settled.
It is also clear that apart from currency changes making it more attractive for foreign buyers due to the Pound falling, nothing drastic is about to happen in the short term as there will have to be a new Prime Minister before Article 50, the move that triggers the start of the ending of EU membership is triggered and that won’t be before September.
In the meantime, all the ‘warning’ headlines reporting various EU leaders saying that the UK should get on with have fizzled out and there are now murmurings that talks can take place before Article 50 is invoked. This is partly due to both France and Germany having general elections coming up with their leaders wanting to concentrate on that.
The slowdown, and it is marginal, might actually be a good thing for the residential market. For example, first time buyers in England and Wales paid an average of GBP 173,282 to get on the housing ladder in May, a record high that was fuelled by intense competition for properties. A slowing of price growth could help more first time buyers get on the housing ladder.
This would be good as the data from real estate agents Your Move and Reeds Rains also shows that sales in the first time buyer sector were down by 0.8% month on month. This is not surprising as the amount paid by first time buyers has now increased by more than GBP 23,000 in the last 12 months and current average prices paid are the highest on record.
Demand has also fallen which could boost the first time buyer sector. The latest figures from the National Association of Estate Agents show that it has fallen to the lowest level in three years. The majority of estate agents believe that demand will fall further in the short term.
Along with falling demand in May, the supply of houses available to buyers increased marginally from 35 properties available to buy per branch in April to 37 in May. But this could be significant if it continues into June which is likely as things would hardly have picked up in the weeks before the referendum. So, June figures will be very interesting. And it is interesting that although the number of house hunters registered per branch and sales agreed fell in May, sales to first time buyers increased marginally. Some 27% of the total sales completed last month were to first time buyers, an increase of 1%.
And the latest index from the Nationwide shows that prices edged up by just 0.2% in May and annual price growth slowed to 4.7%. Again, it will be interesting to see the June index figures and it is worth remembering that the annual pace of house price growth remains in the fairly narrow range – between 3% and 5% – that has been prevailing for much of the past 12 months.
I see a period of stability ahead. We know that interest rates are not going to rise and mortgage approvals are down in trend terms. There is a lot of political turmoil but once a new PM is in place and he or she sets out the plan for Brexit, what lies ahead will become clearer.
Sales activity could dip and prices remain static or even fall, but this is no bad thing.
Overall, healthy labour market conditions and low borrowing costs are likely to reduce volatility this year but a lot will depend on the economy not falling into recession. The outlook is not as bleak as we might have imagined.