Affordability has become more significant in the UK housing market lately. Even at far lower prices, buyers remain scarce. The situation is one of few buyers breeding fewer sellers. The defining word in 2018 for the UK homes market was “subdued.” Deals took longer to be finalised even after a sale was agreed, according to Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyor (RICS).
The Centre for Economics and Business Research (CEBR) ran a survey that says homes in cities and major towns remained unsold for 102 days on average–a full 6 days longer than in 2017. Who’s to blame? Brexit.
Brexit at this moment is an undeniable reality. The September 2018 outlook for prices, according to surveyors, was the lowest since June 2016. The Bank of England’s Governor, Mike Carney, has previously warned that a sharp no-deal Brexit could shave as much as 35% off house prices.
Ultimately, the details of individual deals and its economic effects in the face of Brexit will determine home prices and mortgages. Certain portions of the market have become highly sensitive to Brexit developments. To determine if it’s a great time to buy, consider the following factors.
Analysts agree the markets would see similar patterns in 2019. Properties will be available because of the three D’s–death, debt, and divorce. Movement is potentially higher as SMEs explore growth opportunities in the wake of Brexit.
Potential new buyers might experience difficulty in clearing debt before getting a mortgage, depending on the strictness of the lending criteria. Potential movers might choose to renovate or extend their homes rather than moving. This is leading many commentators to predict minimal changes in home prices because of Brexit.
The current effect of Brexit on markets
In London, housing prices dipped 0.7%, according to the Office for National Statistics. It’s the same story in the south-east. Transaction levels dropped by 20% year on year, according to an expert from Residential Analysts. The number of homes on the market for upwards of £2 million decreased by 25% in Q3 of 2018, as reported by LonRes.
The rise across the country continues though–3% in the year to June, down from 3.5% the year before. Regional markets were responsible for the rise as house prices in Scotland grew 4.8% to a £150,000 average. Eastern England grew 3.3% to £292,632.
Multiple factors are responsible for these trends including lower numbers of investor-buyers and stretched affordability in the UK’s most expensive markets. Fears about Brexit compound such fears. Brexit has been blamed for creating uncertainty, leading to a dramatic slowdown in house price growth.
London is more prone than the country’s north due to higher financial commitments required to make a purchase in London. Londoners and residents in surrounding areas would feel the effects of any Brexit outcome easily as the concern for their jobs, for instance, could influence their decision. This is less of a problem outside of London and the south-east, according to Ray Boulger, technical product manager at John Charcol.
While uncertainty over Brexit dampens demand from EU buyers, a weakening pound could make UK property lose its appeal to international buyers.
What happens to the property market as Brexit nears?
Those in areas with falling home prices can ride the wave and see what happens. Analysts have suggested that with Brexit, the moment of truth will be the founding or collapse of any transition deal. This issue has been the subject of a previous EU summit. Any reasonable deal would give the market traction.
Potential buyers and sellers can maintain the status quo
Westminster with a slew of clever deal and relationships could put the pep back into the housing market. Deals and relationships that take time also mean the market will go quiet for a while.
Pressure on housing stock due to immigration surge
If the EU tightens border control, this can encourage a last-ditch immigration surge. There will be a resultant short-term pressure on housing stock. Immigration is responsible for 30% of social housing shortages and the private sector could take a good hit. Reduced immigration under Brexit would drop the demand for housing, in the long-term.
Lower demand for high-end property
One option open to international firms is to move their headquarters outside the UK. Boatloads of top executives will leave too, leaving unoccupied high-end residences. More than that, there will be less demand for these properties, especially in London and the south-east. This will inject further reductions into already-falling prices.
The international student effect
If Brexit effects a fall in the number of students willing to study in the UK, demand for the property would follow suit and student landlords will feel the terrible pinch. Brexit throws a blanket of uncertainty over any attempts to predict future house prices.
London-listed global estate agent, Savills, thinks the Bank of England’s dire prediction for house prices under a no-deal scenario is “highly unlikely.” It believes the long-term outlook is more dependent on household finances than house prices–a view we echo above.
To buy or not to buy?
According to Kate Faulkner, founder of propertychecklists.co.uk “If you bought now, you might worry that your home could drop in value. But if you’re going to be there for five or ten years it shouldn’t make too much difference, as the market could well correct itself by then… If you’re considering buying somewhere for the short term, it’s more complicated.”
The UK property market is not as prized as it was before the 2016’s referendum. However, government schemes, tight supply, and regional pockets of growth still provide an opportunity for investment.