Markets across the world have nosedived this morning, following the shock result that Britain is to leave the EU.
The pound is at its lowest level since 1985, following the narrow victory for the leave campaign in an historic outcome.
Shock result?
However, perhaps the result shouldn’t come as that much of a shock. Just yesterday, a poll of over 2,800 homeowners by PropertyPriceAdvice.co.uk gave Leave a substantial lead, of 49.1% to 41.5%.
PPA’s Peter Sherrard noted, ‘as predicted by PropertyPriceAdvice earlier this week, the UK has voted to leave the EU. This shock vote will have far reaching ramifications for the residential property market in the UK during the rest of year.’[1]
Housing market fears
With uncertainty rife, James Roberts of Knight Frank noted, ‘while we need to wait to see precisely what impact a Brexit will have on the UK housing market and wider economy, early indications are that the fall in the pound’s value, as well as the stock market, could very well lead to a new recession, which in turn may result in a cult in interest rates and possibly even further quantitative easing.’[1]
‘The chances of a technical recession, as business investment is curtailed, is high, and exporters and financial services firms will be in the forefront of the downturn. In the light of the above risks we expect the Bank of England, seasoned by the experience of Global Financial Crisis, to respond quickly. An interest rate cut of 25 basis points is a strong possibility at the Monetary Policy Committee’s July meeting, or perhaps earlier if required. We may also see a return of quantitative easing, if there are signs that investment is deteriorating. This should in our opinion help restore confidence as the summer progresses,’ Roberts added.[1]
Halts
Ian Westerling, managing director of Humberts, warns that, ‘housing market professionals will need to brace themselves for a new norm in market dynamics, underpinned by the ongoing unknowns. The wait and see period could lead to some price adjustments; the onus will be on the government to act swiftly to avoid the property market becoming paralysed which would have a knock-on impact on the rest of the economy.’[1]
Adam Challis, head of Residential Research at JLL, believes there will be a slowdown in the housing market for a couple of years.
He observed, ‘price growth will be flat over 2016, reversing gains from the first half of the year, while our central expectations of price falls between 3% and 5% in 2017 and 2018 are based on the best case scenario of a relatively orderly adjustment to our new political realities. It is crucial that UK politicians and civil servants push hard to regain transparency early on over the terms of our trading relationships with key European Union partners.’[1]
How will Brexit result affect the property market?
Opportunity knocks?
Britain’s decision to leave the EU has not ben widely condemned across the whole industry. The out vote could open doors for investors, particularly from overseas, to take advantage of the weak currency and potential house price drops.
Robin Paterson, joint chairman and CEO of UK Sotheby’s International Realty, urges people to embrace the result, ‘whole heartedly.’
‘This opens new opportunities for investment, we may have fewer European investors in the coming months but we believe there will be significant inward investment from Asia, as well as from the US. Buyers from these regions will undoubtedly be looking to snap up bricks and mortar in the UK with the predicted fall in sterling,’ Paterson said.[1]
Edward Heaton, founder and managing director of property buying and search agent Heaton and Partners, is also optimistic, saying, ‘there is a risk that with a period of uncertainty ahead of us, prices may drop off, but I believe that any fall will be limited and suggestions of a crash are overstated. The effect is most likely to be felt in London and the South East.’[1]
[1] https://www.propertyinvestortoday.co.uk/breaking-news/2016/6/leave-win-historic-referendum