It’s been over 100 days since Brexit became reality and for many Londoners the EU referendum result came as quite a shock. Now that the dust has settled a bit, just what has been the impact of Brexit on London house prices?
Post-Brexit shock and reassessment
Three months on from the EU referendum, I think London housing market fallout from Brexit has not been as dramatic as first thought.
When the decision to leave the European Union was announced on 24th June, the reaction from property investors was swift. Many of the deals we were working on were renegotiated or fell through. Overnight, buyers wanted to reduce the money they were willing to spend due because of the sudden turmoil that emerged.
This initial turmoil transformed quickly into a sense of uncertainty and coupled with the time of year created the perfect storm for an extremely quiet summer. Uncertainty was reason enough for many to hold fire on committing to buying until the smoke cleared. The months leading up the referendum in June and immediately following the result were some of the quietest we’ve seen in years in terms of property transactions.
A sense of normality returning since the end of summer
As people realised that the sky hadn’t fallen in and financial markets stabilised, a sense of normality returned to the London property market. Those who wanted to pull out of the market had already done so and those that were left were pragmatic.
The acute sense that life goes on, reinforced by unprecedented mortgage deals at extraordinarily low rates, has helped to kick buyers back in to action. The drop in interest rates by the Bank of England in early August to their lowest level ever of 0.25% certainly helped people realise that investing in property is a positive move at the moment.
Things really started to come back together at the end of August, with what can best be described as a meeting of minds between buyers and sellers. Prices have corrected since the start of the year and are probably 10% below ‘peak’ prices. For most sellers this still represents a healthy, and often tax efficient, return on their original investment.
Fall in value of Pound is helping London house prices
The drop in the value of the pound against key currencies has made London property cheaper for foreign investors and we have definitely seen an upsurge in interest from abroad. For many investors, the drop in the pound has made London property more than 10% cheaper and even with uncertainty about the future of the UK economy once we leave the European Union, this seems like a good investment for many.
Stamp Duty not Brexit that has had most impact on London house prices
It may have been 100 days since Brexit but it has been six months since the extra 3% Stamp Duty levy was introduced on second homes. In a market already affected at the top end by the restructuring of Stamp Duty taxation the previous December, this has had a big influence on property prices.
The higher levels of Stamp duty taxation are a real deterrent for many investors, especially at the higher end of the market (£2 million plus) and this part of the market has been very slow, leading to a drop in prices. Although we hope for a row-back on the current thresholds in the Autumn Statement with new Chancellor Philip Hammond, we must accept that this is probably unlikely.
Triggering of article 50 may cause further uncertainty
Going forward until the new year we believe the market will continue at healthy levels as people take advantage of incredibly low interest rates, great mortgage deals or the weak pound.
However the triggering of Article 50 by March 2017 as announced in the last few days by Prime Minister Theresa May will cause more uncertainty and turmoil in the financial markets as people speculate about the fallout from a potentially ‘hard’ Brexit.
How long this uncertainty will cause ripples remains to be seen – as does the nature of Britain’s exit.
Perhaps in time the decision to strike out from the EU will strengthen the London economy and bring fresh opportunities for those invested in London property. In the meantime the old adage may ring true; the best time to be brave is when others are fearful.
If you’d like any advice on the value of your property or investing in London property, don’t hesitate to get in touch.