Tuesday, July 19, 2016

What was the impact of Brexit on Britain's property market?

Now that American stock markets have more than regained the losses sustained after the pro-Brexit vote, another question remaining is the impact on the property market.


What’s in store for the property market post Brexit?

In the weeks leading up to the EU referendum, there was much speculation about the potential impact of a leave vote. George Osborne, chancellor of the Exchequer and effectively the No. 2 official in the British government, warned that house prices could fall by as much as 18% by 2018 - a forecast branded as 'scaremongery' by leave campaigners. The International Monetary Fund also agreed that Brexit would trigger sharp drops in house prices.

Now that the result is known and the dust has started to settle, everyone is wondering how Britain leaving the Union will affect them. The only thing that’s certain in the current climate is uncertainty.


Homeowners and Landlords

In the Bank of England’s bi-annual Financial Stability Report released recently, economist and bank Governor Mark Carney warned that “conditions will be difficult” for future mortgage borrowers due to the economic volatility in the past week.

For existing homeowners and landlords, the predicted drop in house prices is worrying. Falling house prices and inflated interest rates could cause fluctuation in loan to value ratios, resulting in negative equity.

Landlord insurance provider HomeLet reported in its most recent Rental Index that rents have continued to rise in the first half of the year, although they have slightly slowed during the past last year in the wake of the UK deciding to leave the EU.

The average rent (excluding Greater London) has risen to £773 (US$1,031) per month, which is 3.5 per cent higher than last year, according to the report. Average rent in London has risen to £1,575 (US$2101) per month, up 3.9 per cent over the last year.


Housing crisis

One prediction made by the Leave Campaign was that the housing crisis would be resolved by leaving the EU. This prediction was made on the assumption that the demand for housing would be decreased by reduced immigration. However, sharp drops in share prices caused by the leave vote may mean that house builders will not be able to secure funding for new developments, resulting in housing targets not being met. Berkeley and Barratt Developments both experienced a significant drop, followed by a slight rise, in share prices.


Commercial property

Commercial property funds, with over £9bn ($US12bn) of investors’ money, halted redemptions early in July after an increase in investors withdrawing. Companies including M&G, Aviva and Standard Life all made this move, with others expecting to follow. Share prices have gradually stabilized, but there is still widespread uncertainty.


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