Too early to say Brexit effect is over
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.