Too early to say Brexit ef­fect is over

Financial Mirror (Cyprus) - - FRONT PAGE -

The head­lines in the last few days might sug­gest that the UK res­i­den­tial prop­erty market has bounced back from some un­cer­tainty cre­ated by the de­ci­sion to leave the Euro­pean Union, but a glance be­hind those head­lines paints a dif­fer­ent pic­ture.

In a puff of glory the lat­est survey from the Royal In­sti­tu­tion of Char­tered Sur­vey­ors (RICS) de­clared that the prop­erty market is be­gin­ning to pick up na­tion­wide for the first time since Fe­bru­ary with prices and buyer de­mand both up.

It adds that market con­fi­dence continues to im­prove fol­low­ing some jit­ters just af­ter the Euro­pean Union ref­er­en­dum, but Brexit is not hav­ing a ma­jor im­pact and some 8% more char­tered sur­vey­ors re­ported an in­crease in buyer en­quiries in Septem­ber, a sig­nif­i­cant turn­around in new buyer en­quiries com­pared to June when a net bal­ance of 34% of re­spon­dents re­ported a drop.

But you need to go be­yond in­deed, the re­port warns that this the and, lat­est re­sults show con­sid­er­able vari­a­tion across the UK, with some re­spon­dents see­ing a more sta­ble trend as op­posed to a solid re­cov­ery.

Also, it is worth not­ing that it is a lack of new prop­er­ties com­ing onto the market that is keep­ing it buoy­ant at the mo­ment. The av­er­age level of stock on es­tate agents’ books re­mains close to his­toric lows at just over 45 prop­er­ties and RICS points out that this drop in new prop­er­ties com­ing to the market continues a pat­tern that ex­tends back to the mid­dle of 2014, with a brief ex­cep­tion around the turn of the year when some ven­dors saw op­por­tu­nity linked to the April hike in stamp duty for in­vestors.

The drop in hous­ing sup­ply along­side the in­crease in buyer de­mand is ex­pected to push up prices some­what in the near term and by rather more in the longer term. RICS ex­pects that na­tion­ally, house prices are set to rise fur­ther.

While this might look like good news, it is worth con­sid­er­ing what this ac­tu­ally means. Another survey from the Bank of Cyprus UK found that 40% of business own­ers and small busi­nesses in the UK ex­pect buy­ers and sell­ers of houses to hold back un­til there is greater clar­ity on the im­pact of Brexit.

Of these, 30% ex­pect house prices to

fall by 5% over the next year and 11% be­lieve prices will fall by 10% over the next 12 months and the re­port con­cludes that the res­i­den­tial sec­tor is fac­ing an un­cer­tain fu­ture. Many buy­ers and sell­ers are sit­ting on the fence by with­hold­ing de­ci­sions re­gard­ing the sale or pur­chase of prop­er­ties de­spite in­ter­est rates be­ing at his­toric lows and the cost of mort­gages de­clin­ing.

Let’s just think too, about costs. Away from the prop­erty market, head­lines in the last week have been talk­ing about how the cost of our su­per­mar­ket shop is set to rise con­sid­er­ably due to the fall­ing Pound, which in turn is due to Brexit. While food gi­ant Tesco has fended off price rises from gro­cery gi­ant Unilever for the time be­ing, econ­o­mists are warn­ing that prices of many goods will in­evitably rise.

This is at a time when re­search sug­gests that home own­ers and ten­ants would strug­gle to cope with higher mort­gage rates and higher rents. A YouGov survey for prop­erty clas­si­fieds site The House Shop, asked peo­ple to es­ti­mate the min­i­mum per­cent­age that their monthly mort­gage or rent pay­ments would have to in­crease be­fore they be­came un­af­ford­able.

Many renters in­di­cated that they are al­ready pay­ing the up­per limit of what they can af­ford and home own­ers with mort­gages were much more likely to be able to with­stand smaller in­creases in their monthly pay­ments. Just 3% said they could not af­ford an in­crease of up to 1%, com­pared to the 16% of pri­vate renters who said the same.

The fact that 16% of renters said that they would strug­gle to af­ford even a 1% in­crease in monthly rent is es­pe­cially wor­ry­ing as this could equate to as lit­tle as GBP 7.79 ex­tra per month based on av­er­age UK rents.

That is okay, you might think, as the lat­est HomeLet rental in­dex showed that new rents are fall­ing, but many ex­perts be­lieve they will start rising again next year as land­lords face tougher tests for buy-to-let mort­gages and tax changes will eat into their prof­its. Re­search sug­gests that land­lords will com­pen­sate by putting up rents.

Per­haps it is a tad too early to be think­ing that Brexit has not had much of an im­pact on the prop­erty market. It should be re­mem­bered that the UK prop­erty market is very closely linked to the econ­omy so jobs, cur­rency change and fi­nan­cial un­cer­tainty, all linked to Brexit, will still have an ef­fect over the next two years as the terms of leav­ing the EU is ne­go­ti­ated.

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