A key question for 2016: How will Brexit affect the UK housing market?
The narrow vote for Britain to leave the EU came as a surprise to just about everyone. It seemed that no-one on the Remain side had considered the possibility that they would lose, and no-one on the Leave side had considered the possibility that they would win. As such, the country woke up to a confusing and uncertain future.
The economy has already felt the effects, with the pound falling to a 31-year low against the dollar and many are predicting that the housing market may be the next to suffer. So let’s have a look at some of the consequences that Brexit might have on the property market. Is it all doom and gloom? Or should we be cautiously optimistic about the British exit from the EU?
Overall little may change initially
Despite the initial surprise at the result of the EU referendum vote, there is little to suggest that the housing market will change much initially. After all, Britain will still retain EU membership for the next two years while we go through the process of leaving, and during that time people will still need property. As the country works out its new direction there may be some shifts in popularity in certain areas, but there will still be high demand for homes with little supply. That ensures that house prices should continue to rise, despite Brexit.
London’s house prices will almost certainly fall
If anywhere is likely to be hit badly by the EU referendum result, it’s London. London is the home to many highly-paid corporate, banking and finance roles that may be moved out of the country into an EU country. This will create something of a mass departure from the city which will see property prices pushed down. In fact it may well be London that suffers most from Brexit as the capital has typically been the most popular place for overseas investors, who may now be less comfortable in putting their money into the UK.
But the recovery may well be swift
It’s important to remember that London is London, and that slightly lower house prices are just a brilliant opportunity for investors. The fact is that despite Brexit, there will always be people with money and there will always be demand for property in London. Any weaknesses in the market will quickly sort themselves and London should find its property prices rising again very fast.
Mortgages may be cheaper
Interestingly, it’s worth noting that uncertainty and weakness in the economy will probably lead to interest rates staying the same or perhaps even reducing even more than they already have. Mortgages rates usually follow interest rates, so it could be the case that the amount that you have to pay on your mortgage will come down. This view is controversial as it’s also true that mortgage rates tend to look to the future as well, but it could still be the case that current homeowners may be looking at a decrease in the amount that they pay.
Less houses may be built
Brexit will almost certainly mean less investment going into the UK for the time being. This will hit house building very quickly and we may see plans put on hold or scrapped altogether until there is more certainty in the market. As the government and private house builders wait to see the effects that Brexit has on the economy, they are more likely to remain cautious with their money. This will be another factor in why house prices will not fall – with fewer new houses coming to the market, demand will be even higher and supply even lower than ever before.
In the long term – who knows?
There are an awful lot of issues to consider when looking at how the housing market will be affected in the long-term. Ultimately it will depend on how the economy performs and whether the jobs market suffers a hit. If it does, we could start seeing people not having as much money to spend and finding it difficult to get the money together for mortgages. This is where we could see significant falls in house prices.
Article provided by Mike James, an independent content writer in the property industry. For the information in this post, Hunters Estate Agents were consulted.