We have not been surprised to witness a significant slowdown in the housing market following the buy-to-let rush to complete on transactions before the 31 March deadline on stamp duty rises for second homes.
The UK’s largest lender, Halifax, reported that house prices had dropped by 0.8% during April as buy-to let purchasers practically vanished from the market, a sharp reverse on the 2.2% gain seen in March. Analysts are now split as to whether continued tight market conditions will push prices back up, or whether the EU referendum next month will deter buyers and drive prices down further.
Both surveyors and estate agents have been reporting of a “climate of uncertainty” on the ground with transaction numbers falling significantly at the multi-million pound level in particular as buyers from mainland Europe await the outcome of the vote on 23 June. That end of the market had of course already been hit by George Osborne’s stamp duty hikes back in December 2014. There are further questions over what may happen to the UK currency and economy generally after June as both house builders and buyers are effectively sitting on their hands.
The prime central London market has been especially affected partly because it is more dependent on overseas buyers, and partly because prices in this sector are already falling, creating an added incentive for potential buyers to “wait and see”. However, some do appear to view the current climate as a real buying opportunity, with many of the belief that there is a high probability that the UK will vote to stay in the EU, thereby strengthening the pound against other currencies.
The proportion of EU homeowners selling their prime central London properties has also dropped this year, suggesting a general mood of nervousness about making decisions ahead of the vote. However the general outlook is obviously hugely varied across the UK. In the North West of England and Northern Ireland, analysts are actually expecting house prices to rise significantly over the coming months.
The property market is therefore likely to remain in the spotlight as a discussion point in the weeks leading up to the referendum. As was evident during the pre-General Election period last year, when the property market stalled, there is nothing that spooks markets more than reports of uncertainty, thereby creating a self-fulfilling prophecy.
The 2015 General Election saw sales volumes in prime central London fall by 18%, but all the evidence suggests that markets do tend to rally thereafter – regardless of the outcome – despite George Osborne’s prediction of economic Armageddon as the collateral damage of a Brexit.
Worldwide, property investors are attracted in particular by London’s reputation as a cultural, educational and financial centre, together with its rule of law, and political and economic stability – all bona fide factors unaffected by a UK exit from the EU. From a property perspective, therefore, people will continue to be drawn to this, whether or not the UK is a smaller power outside the EU bloc.