Christopher is a Marketing Executive at Deo Volente Solicitors
June 24th 2016 saw an almost unprecedented level of panic and hysteria in all sectors of the UK economy, with many people fearing the potential implications of a vote for Brexit. A vote that, just 24 hours before, seemed unimaginable. The housing sector was no exception, with the Financial Times claiming in their June 26th 2016 edition that: ‘An initial wave of buyers pulled out (of house purchases) immediately on Friday. The consensus was clear – Brexit would be a disaster for the housing market, with house prices slashed and foreign investment shrinking. The below diagram shows just how bad many people thought it would be, with house prices expected to fall to levels almost akin to the 2008/09 financial crisis.
So, almost two years on from the vote to leave the European Union, is the prognosis still as bleak? Examining the current state of the market will give us some idea as to the answer to that question…
Supply and Demand:
Due to lack of houses being built, demand still exceeds supply in the UK housing market, meaning that prices will, naturally, remain high. However, Brexit could have some effect on the demand for houses going forward. With many households facing economic uncertainty and growing worries over job security, some are reluctant to engage in the financial commitment of buying a house, with many preferring instead to continue renting. Whilst this has not yet had a sizeable impact on demand, with just under a year still to go until leaving day, only time will tell what effect this shrinking consumer confidence will have on house prices.
Many estate agents argue that, when it comes to high-end properties, it is a rise in stamp duty that is causing house prices to fall, not Brexit. In December 2014, stamp duty rose dramatically for properties with a value of over £937,000 and many experts have stated that, because of this, many people are choosing not to move to a new property as it is simply too expensive to do so. This has caused prices of many high-end properties to fall, as demand is not as strong as it was before the tax increase.
However, with that being said, the increase in stamp duty has only had a detrimental impact on properties worth over £937,000. For all properties below that threshold, stamp duty has either remained the same or has decreased. Thereby, if the fall in demand for higher end properties truly is a direct result of the stamp duty increases, then we should be seeing an opposite increase in demand for less expensive properties, on which the amount of stamp duty payable has been lowered. This is happening to some extent and these stamp duty decreases, combined with government led schemes such as ‘help to buy’, has made housing in the UK more affordable. This has meant that, for the majority of properties in the UK housing market, prices have remained relatively constant.
Whilst the economic uncertainty caused by Brexit does seem to have had some form of an impact on house prices, it is fair to say that the demand for houses is still strong and, as such, prices remain relatively stable. Interestingly though, it seems that the demand for higher end properties has decreased slightly, although it could be argued that this has more to do with the increase in stamp duty rather than Brexit. That could be beginning to change though, as the London housing market appears to be experiencing a high level of investment from Asia, particularly from the far east…With that in mind, as far as future UK house prices are concerned, it’s very much a case of watch this space!
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