Brexit Housing Market: The Story So Far

Brexit Housing Market: The Story So Far

On 23rd June, 2016 the UK voted to leave the EU. With another long extension agreed with the EU last night, the Brexit story is far from over. However, it’s worth reviewing what has happened to the property market over the past 3 years and hopefully dispel some myths along the way.

Have UK house prices crashed since the Brexit vote?

No.

There has been political and economic uncertainty since Brexit but this hasn’t translated into a major correction to the housing market. 

Have London house prices crashed since the Brexit vote?

No. 

Since the referendum result, but not necessarily because of it, prices in London and the South East have been fairly subdued. A recent Zoopla House Price Index report marked London’s growth since the referendum at around 1%. However, it is important to understand that the South East and the rest of the UK operate as a two tier market and other areas have performed more strongly.

What areas have performed well since the Brexit vote? 

Away from the South East, major cities including Bristol, Birmingham, Edinburgh and Manchester have achieved strong growth – Manchester prices have risen 15% since the referendum. These cities all attract skilled workers with high paying jobs but property prices are still far below London levels. 

If other areas have performed well, are there any other reasons behind London’s market slowdown? 

Speak to an estate agent in the capital and chances are you will be told Brexit is behind the quiet market. Brexit uncertainty has certainly had a greater impact on London due to the greater number of international buyers taking a ‘wait and see’ approach to the market. However there are other factors at play.

Firstly, to understand London’s recent market slowdown we need to understand past performance. Following a significant drop following the 2007 financial crisis, the city went on a spectacular bull run from 2009 to 2014. During this period, many homes increased 50% in value and the gap between London and the rest of the UK widened. The recent drop in sold prices over the last 12 months is just a footnote compared to gains over the past decade. The table below puts London’s recent performance into perspective. 

Source: UK House Price Index: January 2019 (ONS)

Brexit Housing Market

Note: The strong growth of regional cities is not clearly shown in the above chart as it is based on regional performance. Hometrack’s UK Cities House Price Index summarises the discussed performance of individual cities.

It is also important to remember that the largest falls in the capital have been in the highest valued homes in prime central London and performance has been more robust elsewhere. When you see headlines talking about 30% reductions to asking prices, it’s likely that the asking price was unrealistic to begin with and the sale is likely to be in excess of £5million. We have previously covered London’s struggling luxury off-plan property market where asking prices have dipped over the last 12 months and this has also brought down average growth. 

Finally the introduction of second home Stamp Duty Land Tax, two months before the referendum, has arguably had a greater impact on London’s market. SDLT disproportionately affects the London market for several reasons. Firstly, London has more international buyers purchasing a second home who are affected by the tax. Secondly the SDLT tax bands mean expensive properties are taxed an increasingly higher tax rate – see table below. The London market and stubborn vendors have slowly had to adjust asking prices to take this extra cost for buyers into account. The total amount of money going into a London property transaction may be similar to three years ago but the taxman is now likely to be taking a greater share and the sale price may be lower. 

Worked example of Stamp Duty’s greater impact on more expensive properties

Property Price SDLT First Home Rate SDLT Second Home Rate
£100,000
0 (0%)
£3,000 (3%)
£500,000
£10,000 (2%)
£30,000 (6%)
£1,000,000
£43,750 (4.3%)
£73, 750 (7.3%)
£2,000,000
£153,750 (7.6%)
£213,750 (10.6%)

What does this mean for buyers in London?

At Perrygate, our clients are typically looking to buy a home or long-term investment. The current subdued market represents an excellent opportunity to secure significant discounts from vendors.

The main difference between the market now and three years ago is not the prices but the reduction in available housing stock and transaction activity. As a buying agent, a key part of our role is to help our clients identify motivated sellers who genuinely need to achieve a sale in a short time frame and work with the other party to get a sale over the line. The lack of competition gives a major advantage to those looking to buy. 

At Perrygate, we are not predicting a major correction to the London market. UK lending regulations are far stricter than before the 2007 financial crisis and mortgage applications are more commonly rejected. London also has many great traits which will still be there regardless of the outcome to Brexit. The city has the natural advantage of Greenwich Mean Time – allowing The City to trade with the US and Asian markets throughout the day. It is also one of the world’s culturally richest cities and any short-term affects of Brexit on the market will not London being a place where many people want to live and work. 

International buyers who make up a significant proportion of the market are also effectively getting strong discounts from the weak sterling – particularly against the US dollar. 

Historically, there are many fundamental factors keeping UK property prices high. As is the case almost every year, not enough homes are built to keep up with demand and strict planning regulations on greenbelt land near major cities limits development opportunities. We are also in a low interest environment with the base rate near historic lows at 0.75%. As with any kind of investment, a long-term view not focused on timing the market or concerned with short-term volatility is often rewarded. 

Perrygate is not a financial advisor and anyone considering purchasing UK property must undertake their own due diligence. The opinions expressed in this and other articles are the personal opinions of staff at Perrygate and are not investment advice. The value of an investment may go up or down. Please see our Terms of Use  for more information. 

Interested in buying a property in London? Contact us today to discuss your search and for a no obligation consultation. 

 

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