Following the UK vote to leave the European Union, immediate concerns included:
- The UK housing market would be perceived as less attractive to foreign investors. A KPMG poll of real estate investors suggested two thirds of them believed that Brexit would result in less inward investment.
- Foreign firms would relocate and their employees would elect to move with them. However, it was envisaged that the rental market may, in the short term, pick up as EU nationals decide to move during the transitional period.
- Greater restrictions on foreign workers (who make up a large proportion of the workforce in the construction industry) would harm the supply of new homes and fewer foreign workers would then also reduce demand. Consequently, the Treasury expected property prices would drop between 10% and 18% lower than the base level projections by 2018.
So what has actually happened?
Thankfully, figures suggest the Brexit concerns have failed to hit the UK housing market as hard as had been feared.
Savills has said: "A realisation that Brexit feeds into the wider economy, people's prospects for earnings, people's prospects for employment and then that beginning to filter through into the hard economic reality ... is likely to make buyers more cautious." Despite this, London house prices are expected to increase by 7% this year and remain flat in 2017. However, Savills predicts an overall 16% decrease in transactions to just over 1 million in 2018.
The Royal Institution of Chartered Surveyors (RICS) says demand among home buyers have seen a modest recovery following "post-referendum jitters". It said buyer demand rose for the first time in seven months in September. Research from the RICS suggests that on balance its respondents expect prices to fall over the next three months, while they expect them to rise over a 12-month period.
Since the vote, the Bank of England has taken a number of steps to boost the UK economy, including cutting interest rates from 0.5% to 0.25% in August - the first reduction in the cost of borrowing since 2009. The Bank has also announced a huge extension of its quantitative easing programme by an extra £70bn, and a £100bn scheme to force banks to pass on the low interest rate to households and businesses.
Brexit (if and when it happens) is very different from 2009, when the whole financial system was on the verge of collapse. This time round the fundamentals of property remain good; there is a lot of money chasing investment.
We would expect that the housing market will continue in a state of nervousness and for house price growth to remain flat until the process of the transition is clear. It was hoped that the Chancellor would have addressed this in his Autumn Statement and re-visit the high levels of SDLT. The fact that he did not suggests to us that the government is confident that the pre-referendum concerns may not fully materialize.
The flat property market is likely to put more pressure on the rental market. However, expectations that interest rates will remain low for some time, keeping borrowing cheap, together with overseas investors exploiting the weak sterling should prevent house prices from falling across the country generally.