Global markets have plunged, David Cameron has announced that he is to step down as Prime Minister later this year and sterling has crumbled to a 31-year low, after the Leave campaign won by a narrow margin to leave the European Union in a historic referendum.
The public vote in favour of leaving the EU has come as a fair shock to many people, but not for others. There has been a sense of gathering momentum for the Leave campaign in recent weeks, as illustrated by the most recent polls.
Just 24 hours ahead of the EU vote, a poll of more than 2,800 homeowners, conducted by PropertyPriceAdvice.co.uk (PPA), gave Leave a significant lead, with 49.1% of people who intend to vote choosing to exit the EU, compared to 41.5% for Remain.
“As predicted by PropertyPriceAdvice earlier this week, the UK has voted to leave the EU,” said PPA’s Peter Sherrard. “This shock vote will have far reaching ramifications for the residential property market in the UK during the rest of this year.”
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 cut in interest rates and possibly even further quantitative easing, according to James Roberts at Knight Frank.
He commented: “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.”
The UK housing market will now come to a virtual halt as a result of the Brexit, as politicians undergo lengthy negotiations to help establish what post-Europe looks like for Britain, according to Ian Westerling, managing director of Humberts.
He points out that while ‘must movers’ will still move in line with their personal circumstances – “upsizing, downsizing or moving for schools”. In contrast, many investors and less committed buyers are likely to “sit tight to see the economic and social impact of today’s announcement”.
Westerling continued: “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.”
A Vote Leave result brings an unprecedented ‘new dawn’ for Britain, with considerable uncertainty over the likely impacts for the next few years.
Adam Challis, head of Residential Research at JLL, believes that there will be an immediate slowdown in housing market transactions, in the order of 10%-15%, resulting in downward pressure on prices for at least a couple of years, and while JLL anticipate current activity levels will return, this is unlikely before late in 2018.
He commented: “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.”
But the UK’s decision to leave the EU may open up fresh opportunities for investors, especially overseas investors looking to take advantage of the weak UK currency, and a potential drop in house prices.
Robin Paterson, joint Chairman and CEO of United Kingdom Sotheby’s International Realty, is urging people to “embrace” a Brexit “whole heartedly”.
“This [the EU vote] 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.”
Edward Heaton, founder and managing director of property buying and search agent Heaton & Partners, agrees that a dramatic drop in the pound’s value will suddenly make the UK, and in particular London, “suddenly look much better value to foreign buyers”.
He added: “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.”