In the aftermath of the historic EU Referendum vote, many will be considering how their personal finances will be affected.
Homeowners or prospective homeowners will also be concerned, as the vote could have an impact upon home ownership. Further, the housing sector is also a key (although troubled) sector of the UK economy. So what are the likely consequences of the Out vote?
However, financial experts believe interest rates will fall because the Bank of England will be forced to attempt to stimulate the economy amidst an economic fall. This was evident in Bank of England Governor Mark Carney’s initial reaction and speeches to the Out vote as he attempted to calm the markets.
The Bank’s Monetary Policy Committee will meet in July as planned to discuss the matter of interest rates. Although market movements could lead to a rate rise, economists at JP Morgan and elsewhere forecast that borrowing costs could fall to zero by August.
Linked to housing and mortgage rates, swap rates have been falling since the Out vote. Swap rates are often the precursor to changing mortgage rates. If mortgage interest rates follow the swap rates in falling, then housebuyers and those remortgaging could potentially see the cost of their monthly repayments become that bit cheaper. Interest rates have been at a historically low 0.5% for a long time recently, but lenders could decide that cheaper rates are needed to tempt what may be a smaller number of first-time buyers, movers and those seeking to remortgage.
For first time buyers, a lower rate is welcome – as are lower house prices. In the run up to the vote, there was anecdotal evidence of a clear trend to put any house buying plans on hold – even if briefly to see what the initial outcome would be. The prediction from many economists, the Treasury, and from the housing sector was that house prices would fall – by as much as 18%.
The reality was different. The housing sector did see a marked decline in the FTSE100 and in the City, as major developers lost value. Instead of a rapid crash in house prices, what experts called a ‘softening’ occurred, where a noticeable fall was seen, but not a drastic one.
Many estate agents and developers did see a spate of cancellations and sales falling through on the Friday; according to the Financial Times, estate agents such as Chestertons and property developers such as Galliard Homes saw buyers pull out of sales. London itself saw a sharp decline in house prices. Surprisingly, as the currency markets adjusted to the rapid fall of pound sterling, London saw a rash of foreign investors step in to buy property at now cheaper prices.
Prime property markets saw a drop, though, in areas such as London, which probably benefits most from foreign buyers. Galliard Homes, London’s largest private housebuilder, stated that post Brexit “the London economy will falter… the uncertainty it would cause will generate a value drop in the property market in a very short time”.
Whatever the longer term impact of a fall in house prices – the young and first time buyers weill definitely welcome such a fall. The housing sector has long been beset with problems, as prices seem to keep on rising, and the question of affordable housing becomes ever more of an issue. Brexit is merely another problem to impact upon an already troubled sector. For better or for worse – only time will tell. However, the initial impact of Brexit upon housing seems to be a lot less negative than forecast.