Despite the Brexit vote affecting sentiment in the housing market, many households are expecting property prices to rise, albeit at a steady pace.
The latest House Price Sentiment Index (HPSI) from Knight Frank and IHS Markit indicates that households across the UK feel the value of their home dropped during July. Respondents in nine of the eleven regions covered by the Index put this solely down to the decision to leave the European Union.
Positive future?
This said, the future HPSI is positive, with the majority of households suggesting that the value of their home will increase over the next 12 months. However, this rise is forecasted to be at its most modest since October 2012.
‘The impact of uncertainty in the wake of the Brexit vote is clear from the HPSI index reading for July, especially in light of the relative strength of sentiment in the run-up to the vote. Although there has been a marked drop in the index, the readings are hovering around the no-change mark, similar to levels in 2012/2013,’ noted Grainne Gilmore, head of UK residential research at Knight Frank.[1]
Regional variations
Results from the Index show that households in the South of England are more confident about property price rises than those in the North, Scotland or Wales.
Alongside geographical discrepancies, there are differences in positivity throughout various age groups. Those over 55 expect the value of their home to fall in the next year, similar to those aged 18-24. However, other age groups expect a moderate rise.
Tim Moore, senior economist at HIS Markit, said, ‘the surge in economic uncertainty after the EU referendum weighed heavily on UK house price sentiment during July. The current prices index signalled the greatest month to month loss of momentum for at least seven-and-a-half-years. Despite a sizeable fall since June, the latest reading signalled that house price sentiment was at a level seen in early 2013 and only marginally downbeat overall.’[1]
‘Households across all UK regions also indicated a sharp recalibration of their property price expectations for the next 12 months, led by those living in London and the South East,’ he continued.
Property prices set to increase despite scepticism
Referendum reductions
Before the referendum, 43% of UK households expected a yearly rise in property values, as opposed to 8% that predicted a fall. Now, there is a fairly even split, with 26% predicting a rise in values and 23% anticipating a fall.
Concluding, Mr Moore said, ‘While it is too early to evaluate the full impact of the EU referendum on the UK property market, it is already clear that heightened uncertainty has cast a shadow over household sentiment. At the same time, fundamental imbalances between housing supply and demand have not changed materially, while lending conditions remain supportive. Nonetheless, a sharp jolt to consumer confidence in July has impacted swiftly on UK households’ perception of their property value, and this is also a signal that price expectations could remain highly sensitive to economic and political developments over the months ahead.’[1]
[1] https://www.propertyinvestortoday.co.uk/breaking-news/2016/7/house-prices-set-to-rise-despite-waning-confidence