Will Brexit Hit UK House Prices?
One of the questions on the mind of people in UK is what leaving the European Union (Brexit) will mean for house prices and people trying to get on the property ladder.
The rumblings in the property industry caused the Governor of the Bank of England to issue a caution to would be buyers sometime in 2016. He warned that buyers should exercise prudence when taking out mortgage for a house as conditions are likely to be difficult at some point in time during the lifetime of the mortgage. While this doesn’t say exactly how the market is expected to turn, it is indicative of what property owners and investors should expect in the wake of Bexit.
So what exactly should we expect for housing post Brexit?
Drop in house prices:
In 2017, industry experts predict a drop in the prices of houses by 14.2% which will likely take place between 2018 and 2022. This prediction suggests that the growth of house prices in UK will drop as buyers’ sentiments become uncertain. This means that homeowners and those looking to sell their properties should expect an unenthusiastic reception. It is even worse for London where the property atmosphere is more dependent on the international market with experts predicting that house prices in the Capital will slide into negative territory once again.
But while this forecast is definitely gloomy, it will surely be a welcome development for aspiring first time buyers who cannot afford to meet the high prices for the house of their dreams. With uncertainty going strong and property developers looking to cash out before things get worse, a lot of properties are going on the market for prices which they normally would not go for. Property website The House Shop suggests that if you have a sizable amount of money saved up and you are looking at a house where you plan to live in for a long time, then it might be a good idea to take advantage of the uncertainty and cash in on some good prices.
Other experts seem to have arrived at the same conclusion, However, mortgage saving experts suggests that if you are a property investor looking for another buy to let, it may be prudent to hold your horses a bit and see which way the wind will blow.
Drop in transactions:
Even as the property market is slowing down due to uncertainty tied to Brexit, not only is the price for houses dropping, the number of market transactions are also dropping and will likely drop some more in the following leading to Brexit. A 2016 report by the Royal Institute of Chartered Surveyors showed that inquiries from buyers are dropping as people now want to sit on their cash and await further developments. Estate agents Savills predicted last year that the number of houses sold in 2018 will drop by 16pc compared to the figure of 2017.
Mortgage requirements will change:
It is no secret that lenders are already tightening their requirements for mortgage applications prelude to Brexit proper and the amount of deposit required has increased slightly . And even though the government has abolished stamp duties for first time buyers on properties costing below £300,000, buyers still have to spend a longer time saving the necessary deposit needed to buy the property and work a bit more to meet the mortgage requirements. This will naturally create a stall in the housing market that may take a few years to sort out.
Increase in conversions and extensions:
Current homeowners who should be considering a larger property will be reluctant to put their property on the market because they fear that they may not be able to afford a new home. Instead we can already see an increase in applications by homeowners who want to add an extension to their existing property in order to get the needed space. Of course, many will see this as a negative development considering the current state of the economy and property market, but if approvals are given and these modifications are carried out, it would mean an increase in the value of the property in years to come.
It is only fair to point out that Brexit is not the only reason for the falling house prices. The increase in interest rates and many other variable factors are also as much to blame for the current hit the UK property market is taking.