BREXIT has sent the shockwaves through the global economy and prompted a huge drop in value of the pound. But what will happen to house prices?
House prices are likely to fall amid ongoing uncertainty after the British people voted for Brexit, property experts have warned.
The Treasury has predicted that house prices could drop by up to 18% over the next two year as the “economic shock” increased the cost of mortgages.
But Eurosceptic minister Andrea Leadsom dismissed the prediction as “extraordinary claim” made as part of the Remain camp’s so-called Project Fear.
After the Brexit victory, Bank of England governor Mark Carney said that they were “prepared” and had contingency plans in place for the ensuing uncertainty.
Property experts believe would-be sellers are likely to stay put for now and the collapse in the share prices of the UK’s biggest housebuilders points to a freeze in new building.
Jonathan Hopper, managing director of the buying agents Garrington Property Finders, said: “In normal times constrained supply might drive up prices.
“But these are far from normal times, and a softening in prices is all but inevitable.”
Brexit: What will happen next?
Prime Minister David Cameron resigned this morning and said his successor should be in office by October at which point the UK will embark on two years of EU exit talks.
Mr Hopper said that Britain’s exit from the EU was unlikely to be easy but it was the prolonged period of uncertainty that would prove more toxic.
He said: “The property market is likely to make a cry for help – and the new Prime Minister will face growing calls to reverse the stamp duty raises.
“Without renewed stimulus, Britain’s property market faces a ‘hard reset’ and a Darwinian future of victims, survivors and predators.”
Property Partner’s head of research Mark Weedon said that housing transactions in the property market were likely to remain low in the wake of the Brexit vote.
But he said: “The ‘stickiness’ of residential property may prevent house prices from actually falling, with the probable exception of London’s most expensive areas.
“Unlike other asset classes, far fewer people are willing to sell residential property in uncertain times, which in turn further reduces supply and eventually provides upwards pressure on prices.”
The International Monetary Fund forecast a “sharp drops” in house prices after Brexit – something that will be welcomed by first time buyers trying to get on the property ladder.
How has the EU referendum affected house prices?
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said its latest survey in May had predicted the first short-term drop in house prices since 2012.
Mr Rubinsohn said: “The survey also showed that in May demand from buyers fell at the fastest rate in eight years.
“Our members attributed this short term drop to the uncertainty around the EU Referendum, coupled with a slow-down following the rush of buyers completing purchases ahead of the April tax changes.”
These tax changes mean that landlords and second-home owners have to pay an extra 3% in stamp duty for second properties bought after April 2016.
What will happen to house prices in London?
Most of London voted to stay in the EU during the in/out referendum after experiencing an incredible property boom in recent years,
Mr Hopper said: “The irony is agonising – that after voting so resoundingly to remain, London should see its property market decapitated by a victory for the Leave camp.
“Prime central London property has already suffered more than any other market from the uncertainty unleashed by the referendum.
“With a quarter of the capital’s corporate rental market driven by the financial services sector, the convulsions being experienced in the City will filter down to the property market within days.”
He added: “Optimists will point to the collapsing Pound as a potential plus. London property will certainly become cheaper for overseas investors, but buying property is not like buying a holiday.
“No-one makes a long-term financial decision purely because of a favourable exchange rate.”
Richard Donnell, insight director at property analysts Hometrack, said the immediate impact of the vote “is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait and see approach to the short term impact on financial markets and the economy at large”.
Mr Donnell continued: “The decision to leave the EU will be most keenly felt in the London housing market which is fully valued and already facing headwinds. History shows that external shocks can reduce sales volumes by as much as 20% with sales volumes already down over the last year.
“House price growth is already weak and running in low single digits in central London areas and modest price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity.”
What will happen to mortgages?
Economists are suggesting that the Bank of England may cut interest rates, which would actually reduce the cost of lending.
UBS economist David Tinsley predicted two rate cuts from the Bank of England over the half year, taking interest rates from a current record low of 0.5% to zero.
Before the referendum, the Treasury predicted that Brexit would mean a rise of between 0.7% and 1.1% in borrowing costs. Mr Cameron claimed the average cost of a mortgage could increase by up to £1,000 a year.