London Property Price Drop Triggered by Brexit. Will House Shortages and Low Interest Rates Provide a Buffer?


London Property price drop

Since the UK decided to leave the EU, speculation of another recession has been widely reported by the media and this uncertainty has triggered a decline in London house prices. However, the UK is currently still part of the EU and there is still a huge shortage of housing stock. The Bank of England is also likely to keep interest rates low, which should keep mortgage rates affordable for UK homeowners, and debt payments low for UK companies.

Here we look at how the buying trends and London property market have been affected by the result of the EU Referendum.

London Property Price Drop

Property values in London have been hit by the vote to Brexit, according to the Royal Institution of Chartered Surveyors (RICS).

While longer-term economic weakness could set in, it seems a major factor in declining house prices is speculation over a delay in home buying activity due to the fuelled fear caused by Brexit.

Andrew Montlake, director at broker Coreco, echoed this saying a number of clients had put their purchases on hold after the vote to leave. “They want to see what’s going to happen,” he said.

On the morning of post Brexit, house builders also took a hammering, with the four FTSE 100-listed builders dropping 20 per cent or more. Barratt Developments, Taylor Wimpey and Persimmon had all fallen 35% within a week of the vote to leave.

Suspended Trading

On the 4th of July, Standard Life (one of Britain’s biggest investment funds) suspended trading of one of its UK property funds. This decision was taken after they received a vast surge in applications to withdraw from the fund, following the leave vote. By locking investors down, they hope to avoid being forced into fire sales to generate funds for clients who want out.

They announced;

Due to exceptional market circumstances, Standard Life Investments has taken the decision to suspend all trading in the Standard Life Investments UK Real Estate Fund (and its associated Feeder Funds) from 12:00 noon on 4 July 2016.

The decision was taken following an increase in redemption requests as a result of uncertainty for the UK commercial real estate market following the EU referendum result.

The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.

This means Standard Life customers that have been spooked by economic uncertainty will not be able to pull money out of the fund, which invests in UK property assets such as offices, shops and industrial sites.

Housing Shortage

Peter Andrew, deputy chairman of the Home Builders’ Federation, said though it was too early to understand the implications of Brexit, there remains an acute housing shortage in Britain, which could provide a buffer.

Government figures show that there were 142,390 completions in England and Wales in 2015, a 20% annual rise, but well below the estimated 250,000 new homes a year needed just to meet demand.

London property market fundamentals remain strong due to a housing shortage and robust demand supported by low interest rates and government-backed homeownership schemes such as Help to Buy. Billions of pounds of public money has also been set aside to boost homeownership.

A Good Opportunity?

Charles Curran, principal of Maskells Estate Agents said “We do we expect more interest and volumes from overseas buyers due to the pound shedding against the dollar since the vote”.

Real estate investment adviser London Central Portfolio (LCP), which specialises in prime central London property, said it had seen a number of Middle Eastern buyers coming back into the market. A lot of them are converting from dollars and together with any discount they get, the saving in the actual price is quite substantial.

The Future?London property stock market

Although we are initially experiencing a delay in buying activity and therefore a drop in housing prices, low interest rates, house shortages and an increase in overseas buyers could see the London property market recover and flourish in the not so distant future. In the long term, the economic impact of Brexit will hold the key, and resetting Britain’s relationship with the EU is likely to take many years.