When Britain voted to leave the EU, it created uncertainty as we began to venture into uncharted waters as the first country to vote to leave since its creation. In the immediate aftermath of the result, Hanne & Co’s residential conveyancing and property solicitors saw some buyers pull out of their transactions fearing the consequences of ‘Brexit’. So, is there cause for concern? Opinions are split over whether Brexit could spell disaster for homeowners or provide first time buyers with a necessary reduction in house prices following several years of increasing prices.
The rise in property prices that we have seen for the past few years has already started to ease off. The uncertainty of the EU referendum, combined with the impact of the buy-to-let Stamp Duty rules effective from the beginning of April has resulted in a slower growth rate in prices. Whilst this could allow first time buyers, who have previously been priced out of the market, an opportunity to get on the property ladder, the consequences of a slowdown have economic repercussions that have caused concern.
If Brexit results in significantly lower immigration from Europe, this could have repercussions in the housing market as demand will fall. However, the demand for property, particularly in London, is not just limited to Europe and therefore this impact could be limited. According to Knight Frank, in 2013 almost half of central London property was purchased by overseas buyers. The demand from Asia in particular could counteract any impact from the fall in immigration from Europe. In fact, the fall in the pound following the referendum could encourage international investors to buy in the UK so in the short-term the market is likely to remain buoyant.
Whilst therefore demand may remain relatively buoyant there are signs of a significant reduction in the supply of homes. The Royal Institute for Chartered Surveyors reported that in the last month, properties for sale fell to a level not seen since the 2008 crash. This had begun to slow down already prior to the referendum and will most likely take several months at least to recover as the market stabilises.
The signs from the banking sector seem to suggest that commercial property will be hit harder than the residential market. This is largely because a greater percentage of commercial buyers rely on funding from overseas lenders who are less willing to lend in the uncertain post-Brexit market. Although the banking sector is in a considerably stronger position than it was in 2008 before the last downturn, the banks are expected to tighten their belts for both residential and commercial properties until the effect of Brexit has been clarified.
It is unlikely that we will see a series of events similar to those seen in the last recession but the landscape of the property market will change. There may be fewer buyers from Europe but this could be counteracted by interest from other countries, encouraged by the drop in the value of the pound. It is far too early to say exactly what the repercussions of Brexit will be. Once the terms of Britain’s exit from the EU have been clarified and we have more certainty regarding our economic position, the dust will settle and the greater certainty that comes with that will provide a boost to the market. One thing that is certain is that the current climate could provide a buyer with an opportunity as long as sellers are not holding out for a stronger economy. Certainly from our persepctive, within a few weeks of the referendum the London market seems to be bouncing back and we are as busy as ever.