Experts at Savills have assessed the possible impact of the EU referendum on the property market. The vote takes place on June 23 and Lucian Cook, head of residential research, says he believes that short-term economic uncertainty could impact on transaction volumes across the residential, commercial and rural property sectors.
Here, Mr Cook reveals what might happen pre and post referendum: “A vote to stay in the EU would result in restored demand, In the event of a vote to leave, such uncertainty would be extended to the period during which the UK renegotiates its relationship with the EU and other major trading partners.
“The biggest direct risk is the potential long-term reduction in subsidies in the agricultural sector. In the commercial markets we do not feel that there is a substantial risk of companies relocating from London in significant numbers. While the short-term risks in the residential sector are greatest in those markets where international buyers are most active, we believe the impact on the wider UK market remains largely dependent on
“Ultimately, the impact of the EU referendum is dependent on what the outcome means for the UK economy, given that housing policy is essentially a domestic issue and mortgage regulation sits with the Bank of England.
However, we do believe that the UK housing market may be affected by associated economic uncertainty; both from the vote itself and, in the event of a vote to leave the EU, the two-year window for the Government to negotiate the terms of an exit.
“Pre-referendum, consumer confidence and people’s willingness to commit to a house move may be affected. The looming vote is expected to temper transaction levels and the general strength of demand. Similar concerns were expressed prior to the UK general election in 2015. However, if we look at monthly residential transaction levels across the UK mainstream market, it is difficult to pinpoint a fall in general market activity prior to the general election, given that seasonally adjusted transaction levels were already on a downward path at this time, though the extent of the bounceback immediately post election suggests that sales were indeed suppressed in the pre-election period.
With the outcome of the EU referendum far from certain, we could see a similar impact in 2016, although it is highly unlikely that it would cause the UK housing market as a whole to freeze.
By contrast, in the first quarter of 2016 any uncertainty regarding the EU referendum has been offset by demand from those looking to beat the deadline relating to the three per cent stamp duty surcharge on additional homes. Accordingly, we expect the impact to be more keenly felt in the second quarter of this year.
Post-referendum, a vote to stay is likely to see restored demand, although we believe that any ‘relief rush’ is likely to be tempered by mortgage regulation in the mainstream market and taxation constraints among investors and in the prime London market. A vote to leave Europe could create a more prolonged period of uncertainty in the UK economy as an exit is negotiated and this has the potential to affect housing market demand, though the impact on values might be mitigated by a more prolonged period of ultra low interest rates.
Whatever the outcome, there will be a market once the uncertainty clears, albeit potentially more focused on needs-based moves, such as death, debt and divorce, together with the needs of upsizers and downsizers will continue,