As the UK prepares for the EU referendum to still take action, uncertainty is still lingering about what a Brexit would mean for the property market
Brexit, should Britain actually leave the EU. The question is if there is going to be any impact on the residential property market.
“If we stay in, it’ll be back to business relatively quickly. If we leave, I don’t think anyone has quite worked out what all that means, other than more uncertainty,” said Richard Donnell, director of research and insight at Hometrack, a property analyst, to IBTimes UK.
There are two sides of the coin when it comes to the property market. You can have a young couple looking to buy their first time home to a Multi millionaire investing in a £30m flat in central London. A Brexit would affect them both differently. We are going to look at the first example.
When it comes to the average person looking to buy a domestic house or flat, Brexit may not have much of an impact. “As far as domestic supply and demand are concerned, I’d say there aren’t that many major risks, other than if interest rates go up faster, or more than currently expected,” said Stephen Williams, an equity analyst at the investment manager Brewin Dolphin, to IBTimes UK. “We’ve still got this demand and supply imbalance and I think the demand is still there, supply is still limited. From a domestic point of view, I don’t think Brexit is going to have a significant impact at all.”
Donnell said he can’t see the long-term fundamentals shifting because of a Brexit. House prices are largely informed by people’s incomes. So, Donnell said, the Brexit question when it comes to housing is whether it will affect the trajectory of incomes growth. “Long-term, I can’t really see the material difference,” he said. “But, if the government wants to build more homes, wants to create a stable housing market environment with more mortgage lending, more investment in housing, attracting external sources of investment into housing… then uncertainty and turmoil mean you might not get as much investment as you necessarily might get with stability.”
In the short-term at least, the uncertainty will likely suppress activity in the housing market. Donnell of Hometrack analysed the Scottish property market in the tumultuous 18 months prior to the independence referendum in September 2014. He found a 10% drop in transactions compared to what could have been expected had there been no referendum. A key difference, however, is that the lead up to Brexit is something that is hard to predict.
“I think it’s a short, sharp campaign,” Donnell said. “If we take the Scottish example, it’s bound to have some impact on levels of market activity. Market activity has plateaued in the last year anyway. Transaction volumes in the last year for housing have flatlined, more or less, and fallen in parts of London and the south east. So this will just add to the view that there’s going to be a slowdown in house price inflation on lower activity. But because we’ve got a shorter, sharper campaign, hopefully the impact is going to be less pronounced.
“I think the level to which the debate really cuts into jobs, the outlook for your income, possibly mortgages — the more the debate becomes about economic consequences of in or out, and the more it resonates with people and their own financial decision-making, then I think the greater the impact will be. It will really be a turnover impact. It’ll just mean people don’t participate in the market until it’s resolved.”
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