The effects of Brexit on the property market will be stagnation but there should be no price fall, says Sheree Foy.
Do you remember the days just after the European referendum? Papers were filled with commentary debating the future economic and social direction of the UK. Was the economy walking over a cliff? The terms “hard” and “soft” Brexit entered the dictionary shortly afterwards.
I remember the general theme of many property commentators was the famous British “carry on regardless” kind of message. And perhaps a wave of optimism was the right response when the future looked so uncertain. Eighteen months later and we now have some real life experience of unfurling world events, UK economics and even some property trends, so where does that leave us?
The one totally consistent (if bumpy) effect has been the devaluation of sterling. Whilst every day tells a new story, the pound is around nine per cent and 14 per cent lower against the US Dollar and Euro respectively. So, there have been the predictable effects of these changes that we’ve all noticed – our glass of wine abroad is more expensive, our new smartphone is up in price – and a few slightly more surprising and subtle effects.
The anticipated sell down of share markets really didn’t happen except for a few hours after the vote. In fact, it was good news for pension funds that tend to invest in FTSE shares that earn profits overseas as the FTSE galloped ahead.
Moving on to what is happening today, firstly we have seen the reappearance of inflation. Our Consumer Prices Index reached 2.9 per cent in August as the weaker pound filtered through to more expensive imports. At the same time, wage growth at 2.1 per cent is no longer keeping pace with inflation, meaning that households are being squeezed.
The reasons that wages are not growing in an era of low unemployment are somewhat above my amateur economics, but people talk about low productivity, the gig economy and the uncertain global environment.
Finally, in a tightly packed European field, the British economy has moved from leader to laggard. The rate of GDP growth slowed to 0.2 per cent in the first quarter of 2017. The economy is slowing, inflation is high and wages are suppressed.
If we translate these effects into the property market, we can see some trends emerging. Prices kept moving forward in the months after Brexit as buyers continued to chase limited availability of homes to buy. However, just like a runner that starts a marathon too quickly, things have got harder and harder as time has gone on. In fact, prices have gone into reverse in London, where salary multiples are most stretched and Brexit uncertainty weighs most heavily. Sale volumes are down between a quarter and a third as sellers retreat back into their homes and buyers worry about household finances and the costs of servicing debt. The Bank of England base rate is glued at 0.5 per cent, but nothing lasts forever,
The sheer scarcity of good property probably provides a natural floor to prices, but prepare for stagnant times ahead. A sluggish economy will lead to a property market that trades sideways on price with transaction volumes well down. I think the chance of a material price drop is real but remote as the shortage of homes remains one of society’s biggest issues.
Recent announcements to extend the scale and pace of building are welcome, but are just a start.
So what should buyers and sellers do? For sellers, it’s back to basics. Immaculate property presentation, proactive estate agency, great photography and what Savills have termed “precision” pricing. Anyone trying to sell their property at a speculative price, can look forward to admiring their For Sale sign for many months.
Sellers could employ a property consultant to set strategy and overview the process. As for buyers, well you’ll still be a very popular person in the market, but can you find that dream home? Persistency and determination will be the order of the day.
Sheree Foy, property consultant and buying agent, Source Harrogate, www.sourceharrogate.co.uk