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How is the property market faring in the run-up to Brexit?

  1. 30 August 2019
  2. By Andi Michael

With the countdown on to the Brexit deadline at the end of October, we look at how the property market has been affected by the current political uncertainty.


The days continue to tick down until October 31 2019, when the fresh deadline for Britain leaving the EU is set to expire.
 
The likelihood of a no deal exit is now much higher, with Boris Johnson himself going from saying the chances of no deal were a million to one during his leadership campaign to recently saying the chances of Britain striking a deal were ‘touch and go’.  
 
Equally, the attempts to block no deal are ramping up, with Labour leader Jeremy Corbyn meeting with opposition MPs to discuss how to thwart the UK leaving without a deal.
 
The uncertainty, then, is still chronic, but how is the property market faring? It would seem better than predicted, according to our latest data, despite the ongoing paralysis caused by Brexit.

Prices set to rise in October

According to our latest reallymoving House Price Forecast, which takes data from reallymoving conveyancing quote forms filled out on our website, the average house price in England and Wales will increase to £297,281 in October, up by 1.5% on July. This will also represent a 2.8% increase year-on-year.
 
This price increase might be down to people looking to move and sell before Brexit happens, or a sign that people are no longer taking the wait-and-see approach and are instead taking more decisive action.
 
Record low mortgage rates appear to be driving demand, with five-year mortgage deals anticipated to hit their cheapest ever level as the fears surrounding a no-deal Brexit force down lending costs.
 
Since the EU referendum in June 2016, mortgage rates have fallen considerably, according to research carried out by Moneyfacts, with deals aimed at first-time buyers with small (5%) deposits especially prevalent in 2019. Now, though, lenders are battling it out to slash rates for people with more equity to lure them in before Brexit.
 
Rates are falling for first-time buyers with small deposits and buy-to-let landlords alike, which might help to explain why mortgage approvals recently rose to a ten-year high. According to data from UK Finance, the main high street banks approved just over 95,000 mortgages in July, the highest monthly total since July 2009.
 
The figures also found that mortgage approvals for home purchases were 16.4% higher, while gross mortgage lending across the residential market hit £26.1 billion in July, some 2.9% higher than the same month in 2018 and the highest since March 2016.
 
Mark Harris, chief executive of mortgage broker SPF Private Clients, said of the figures: “These [figures] give an indicator of lending activity in coming months so it looks as though many borrowers are shaking off their indecision and getting on with things. Lenders continue to offer cheap mortgage rates, so for those borrowers ready to take the plunge there are many excellent deals to tempt them.”
 
Despite the tax and regulatory challenges faced by buy-to-let investors, they are being helped out by falling mortgage rates, which could encourage them to expand their portfolios. In February this year, it was revealed that the number of buy-to-let mortgage products on the market had reached a post-financial crisis high, giving landlords the most choice they’ve had for almost 12 years, and this positive borrowing environment appears to be continuing.   

Investor sentiment high, at home and abroad 

Back in April, research by bridging lender Market Financial Solutions found that investors in buy-to-let are not being put off by Brexit. Some 57% of the 500 British landlords with property portfolios who were surveyed said they were not changing their investment strategy.
 
The research also revealed that, since the EU referendum, 64% of investors had not let Brexit impact their property investment decisions, while 45% of investors had even expanded their property portfolio. Just 7% had sold one or more homes as a direct consequence of Brexit.
 
What’s more, 29% said they were planning on actively investing in new properties immediately after Brexit.
 
“There is a sense of Brexit fatigue setting in across most financial sectors. While some predicted that this uncertainty would cause house prices to tumble and property investors to flee the market, the appetite for real estate as an investment asset has remained strong,” Paresh Raja, chief executive officer of MFS, said at the time.
 
“It is positive to note that the majority of property investors have been actively seeking new opportunities regardless of Brexit, and such buoyant behaviour looks set to continue over the coming months. Although a degree of hesitancy at times like this is inevitable, the research underlines the long-term strength of bricks and mortar investment to weather such periods.”
 
There have been no signs that this sort of attitude has changed in the months since, with property’s strength as a reliable asset class – much more so than stocks, shares and bonds in recent years – helping it to thrive in uncertain times.
 
This is especially true when it comes to overseas investment, with London often seen as safe haven for foreign buyers. Purchasers from overseas have also benefitted from the drop in the value of the pound, which has made buying conditions more favourable.
 
Prime properties in London are being snapped up by American and Asian buyers, for example, while residents in Hong Kong have also flocked to buy property in London amid political and civil unrest in their home country.

A mixed picture 

While Scotland’s property market recently reached an 11-year high ahead of Brexit – with Aberdein Considine’s quarterly Property Monitor recording transactions worth more than £8 billion between January and June this year, the best since 2008 – the London market has been struggling more, with 29% of homeowners in the capital dropping their asking price ahead of Brexit's October 31 deadline.
 
According to research by online estate agent Nested, 11% of properties currently for sale in London (12,078) have seen a price drop of over £37,000 – the average annual London salary – in order to sell, while 18% of properties for sale have witnessed a price drop of more than 10%.
 
Prices in Prime London, too, have suffered of late thanks to the twin pressures of higher stamp duty and Brexit.
 
The ongoing performance of the property market will depend heavily on the final outcome of Brexit. In a no-deal scenario, some have predicted property prices falling off a cliff and even the possibility of another property crash, of the like not seen since 2008-9. A recent Reuters poll of housing experts suggested that Britain’s property market would probably suffer from a disorderly, hard Brexit, with average prices falling about 3% nationally in the six months after a no deal and by as much as 10% in London.
 
By contrast, if Britain manages to strike a deal with the EU and departs with a transition period, house prices would be set for a mild 1.5% rise over the following two quarters. Additionally, they would increase by 1.4% in London, according to those surveyed.
 
Others, however, suggest the threat to the property market of a no-deal Brexit is overblown, that Brexit uncertainty has already been factored in and that the industry will be able to adapt to and cope with a changed landscape better than most.
 
For now, it seems as if activity, demand and prices are holding up, but a no-deal break from the EU could change all of that. The future direction of the property market will only become clearer once the Brexit impasse has been broken one way or another.
 
 

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