HOW WILL BREXIT AFFECT THE PROPERTY MARKET IN EAST LONDON?

It’s been THE hot topic ever since the result on the 24th June 2016 and has the potential to remain (no pun intended!!) at the forefront of debates on both a political and economic level for years to come.

Whether you were in the Leave or Remain camp, we all have to accept that we are now in a very different landscape and its time to be adaptable and get on with things. I realise the result caused a little dismay in some quarters and there has been a few shockwaves in economic markets but all of these things were expected and part of this changeable environment.

Interestingly however the local property market has coped very well. At the time of writing this article we have seen some fascinating trends appear. The Lettings market has been strong all year and the last period has been no different. Rents have remained steady with Landlords being realistic about their expectations after 5 years of continuous growth. Activity in the Sales market has been robust and we can report that our data shows the same of level of demand from buyers that existed before the Referendum vote. Our Branches have seen lots of buyers registering, going out to view property and agreeing terms to buy. This is important as it shows that buyers are not just testing the water but are committing to purchase. We’ve seen Sellers show a little more flexibility in relation to sale prices but that process started early in 2016 well before the Referendum vote happened. From this writer’s point of view with over 30 years’ experience of the local market, it appears its business as usual however I feel its important to qualify my position on this matter and why I don’t think there will be a significant correction in house prices.

The same economic fundamentals that existed before the vote remain consistent today for the following reasons -

• We don’t build enough new property so supply still lags way behind demand
• East London is still very affordable compared to the rest of the Capital
• UK residents traditionally like to be homeowners and that has not changed
• Access to mortgages has become a little easier in recent years
• The fundamentals of the UK economy remain strong despite recent turbulence
• If your existing housing needs are insufficient and you have to move, then you will be looking at a long term solution rather than the short term one

 Whilst I recognise that wages have not kept pace with house price increases, that does not cancel out the fact so many buyers still dream of purchasing their own home. With no new coherent policy for a significant house building programme in place and interest rates at a historic low, it appears that property prices will be underpinned for some time to come.

 But don’t just take my word for it !!! Here’s what some other property market commentators have to say –

Rightmove - Mid-July 2016 (In House Data)

Housing market steady post referendum

• Price of property coming to market falls 0.9% (-£2,647) this month, within usual expectations for the run-up to the summer holiday season
• Buyer demand in the two weeks since the surprise referendum result is consistent with 2014 although down on 2015:
• Same period in 2015 benefitted substantially from post-election boost so enquiries this year are down 16% compared to that period
• 2014 was not distorted by the election so is a better basis for comparison, and buyer enquiries are at the same level as the like-for-like two weeks in 2014

• Most agents report market momentum continuing due to shortage of suitable property for sale, buyers fearful of missing out on scarce choice, and affordability and availability of low mortgage rates.
• Sellers seem undeterred – compared to the same period last year, the two weeks’ pre-referendum saw the number of new properties coming to market down by 8%, and the two weeks post-referendum saw them up by 6%

 Taylor Wimpey Housebuilders – 28th July 2016 (Daily Mail)

According to chief executive Pete Redfern there has been no major fallout from the vote to leave the European Union yet.  He said: 'We are monitoring customer confidence closely across a number of metrics, including appointment bookings, and these continue to be solid. They added: 'Whilst we saw a small increase in the average cancellation rate immediately following the referendum, this remained low compared to long-term historic norms and is now back in line with recent low levels.

Savills – Mid-July (In House Data)

Political, economic and financial effects of Brexit on the housing market

Much depends on what happens to the twin determinants of the mortgage interest rate – base rates and mortgage lenders margins. The Bank base rate has now stood at an unprecedented low of 0.5% for over seven years. Its future depends on how the Bank views the relative requirements to control inflation on the one hand and encourage economic growth on the other. As things currently stand the consensus appears to be for further cuts this summer, though this may not be fully mirrored by a cut in mortgage rates. There is a risk that the cost of mortgages may rise further down the line as banks seek to protect their margins. At the end of June the average quoted interest rate for a two-year fixed mortgage stood at 1.74% at a lender’s margin of 1.24%. This figure has been largely unchanged over the last 12 months, having progressively fallen over the preceding five years. Having levelled out before the referendum, there is a risk lenders margins will be put under some upward pressure in response to a more uncertain economy and housing market. Overall that could put a squeeze on affordability at the point of purchase but not a rapid tightening across a wider cross section of mortgaged homeowners that leads to widespread repossessions. This limits any downward pressure on prices.

Our Conclusion –

The housing market is underpinned by confidence and whilst there is strong case for some short term uncertainty, for the aforementioned reasons we maintain that the housing market will remain buoyant and is more robust than perhaps we thought. The interventions by the Bank of England and the lessons learnt by financial institutions after the last economic downturn in 2008, means we are better prepared and more adept at dealing with “choppy waters”. There may well be hesitation in some quarters about moving but we feel this will be limited to areas that may become overheated. East London remains affordable compared to other parts of the Capital and we think that will mean it will have a softer landing than most areas. Happy house hunting!