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Will UK House Prices Fall Because of Brexit?

Brexit comes with a myriad of consequences, top among the speculations being the crashing of property prices. As is the case with everything else, there are two schools of thought; one that believes the property market is as solid as it can be while the other believes it is in imminent danger of being unprofitable. 

Domestic property owners are in a state of panic, which has made them dispose off their property after the vote determined the imminent exit of England from European Union.  Contrary to expectations that the market will drop due to the pull out, it is now flooded as foreign investors rush in to take advantage of the bargains.

As the pound weakens from the Brexit vote, countless European buyers are rushing in to dip their toes into Britain’s post EU property market. Most want to take advantage of the indecision that surrounds the whole Brexit situation and cash in before the pound regains its strength.

Looking For a Bargain?

Euro zone buyers gained a £42,000 discount on the average house price in London in the wake of Brexit referendum result, numbers that a London estate agent, Stirling, provides. The discount is due to the depreciating sterling which brings down the cost of the property even though nothing much has changed in the selling price. 

Overnight, London property has become a global hotspot for affordable property, especially for those paying in Euros. The concerns over euro zone’s stability has been on the minds of wealthy French and Italian investors who are now looking to invest in London’s property market. To them, London property is a stable asset in sterling currency. Despite the uncertainty, wealthy investors from the euro zone have stepped in to reduce the property demand gap left by domestic buyers pulling out of the market following the outcome of the Brexit vote.

What Do the Numbers Say?

Various commentators and politicians have bandied figures around in their effort to predict the property market. Chancellor Osborne warned that the property prices could fall by up to 18pc by 2018 following the Brexit vote. The decline rate, however, is solely dependent on today’s market rather than what it will be in 2 years, which is forecasted to rise by 10pc from what they are today. According to treasure, the worst case scenario would be an 8pc price decline.

Why Are Local Property Owners Pulling Out?

Brexit is assumed to cause a technical recession, which will see a rise in the mortgage costs, making home ownership expensive. The costs could still be unaffordable despite the efforts of other main street lenders to offer alternative services to cater to the demand. 

Buyers losing confidence in the market makes the situation worse, thereby reducing the demand and creating a plunge in the property prices. The increase in borrowing costs will make it worse for domestic investors to buy property. All this volatility and uncertainty following the Brexit vote can result to a hit in the financial market.

Good News for First Time Home Buyers

With London being the hardest hit, it has become less attractive to local home buyers after the Brexit vote. The added possible curtailing of immigration could also decrease the demand for housing, which is likely to slow down price inflation of the property as well as affect rental growth. This would be the ideal time for first time buyers. However, despite the low prices, if the borrowing costs are high, it would affect affordability for a majority of the people.

What of Rent Prices?

The fact that many local investors are pulling out gives international investors a chance to have a ball. The UK is home to countless foreign nationals. In fact, 40pc of London’s residents are foreign nationals and slightly more than 11pc of UK’s population is from the EU. These foreign born nationals are majority property owners in some areas such as West End and Mayfair in the UK. However, if Brexit results into stricter immigration requirements, the competition from foreign investors would go down, leading to a drop in property prices. This is because many foreign nationals are uncertain about their future in the country, and are less likely to make a risky investment, which leads to lower demand.

So Should You Still Invest In the Property Market?

If you have been looking for the right property to invest in, by all means possible go ahead with the transactions. Property buyers looking for long term gains will reap the gains of the nonchalance to such changes. These property buyers, who chose specific locations to settle their families, are less likely to sell their property over small political changes. 

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