After months of fierce campaigning and uncertainty surrounding the country’s future, the UK woke to the news that by a majority vote, it has been determined that Britain is to leave the European Union.
Following the shock result, David Cameron announced that he is to step down as Prime Minister by October. The vote result triggered an immediate reaction in the financial markets, with the FTSE falling by 8.7% at the open; with banking and housebuilding shares being some of the hardest hit by the ensuing sell off. Currency traders were blindsided by the vote outcome, and after rallying last night, the Pound has slumped against other international currencies to levels not seen since 1985.
What does this mean for the property market?
Undoubtedly the country is now sailing in unchartered waters and looking further ahead, the only thing that is certain, is that we cannot be sure of much in the short term. The actual process of Brexit is unlikely to be quick or easy, and it is the prolonged period of uncertainty that will accompany it that is likely to prove most toxic.
With the property market intrinsically linked to the wider economy, which in turn affects sentiment, the immediate volatility being seen in the financial markets today is predicted to last some time and accordingly will have a direct knock on effect for the property market.
Buyers and sellers ‘wants’ and ‘needs’ also drive transaction behaviour, and in times of uncertainty those who ‘want’ to move, but do not ‘need’ to, will traditionally defer their plans. The absence of this group of discretionary based buyers and sellers will have an obvious effect on both supply and demand in the months ahead and certainly in the short term, is likely to trigger a fall in both transaction volumes and a softening of average house prices as a consequence.
Winners and losers
Given the truly international population of London and its significant financial and trading links with Europe, the capital looks set be the main loser from the ‘Leave’ vote outcome.
Prime central London property has already suffered more than any other market from the uncertainty unleashed by the referendum, so how much discounting has already been factored in to prices will soon become clear. With a quarter of the capital’s corporate rental market driven by the financial services sector, the convulsions being experienced in the City today are likely to filter down to the London property market.
However, the collapse of Sterling potentially has an ironic silver lining; which in the short term will mean London property becoming cheaper for overseas investors, and softer sale values will enhance yields beyond those available from other traditional asset classes.
Looking outside London, Garrington expects the impact in regional markets to be less profound, but the uncertainty will do little to unblock the supply shortage. Would-be sellers will be more likely to stay put, and this morning’s collapse in the share price of Britain’s largest housebuilders hints at a freeze in new building.
Keep calm and carry on?
Markets do not like uncertainty, and Britain’s exit from the EU has already triggered more economic and political uncertainty than seen in recent history. It is therefore to be entirely expected that the country will be in a state of flux for a number of weeks which might trigger a series of short-sighted and premature reactions.
In an attempt to calm and reassure markets, Bank of England Governor, Mark Carney, has confirmed that the Treasury and Bank of England is well prepared for a Brexit and stands ready with a contingency of £250 billion of additional funds to stabilise financial institutions.
During the course of the morning after this announcement, and as markets began to absorb what an exit means for Britain, both equities and Sterling regained some of their early morning losses.
In much the same way, the property market is going to need time to absorb the idea of Britain being independent of Europe and what this means based on facts and reality, not perception and fear.
Despite needing time to reflect, given the normally long term ownership cycle of property, the volatility caused by a Brexit will not necessarily derail plans to move for those who need to. It will however trigger a more cautious approach amongst buyers and underline the need for the right advice to ensure purchasing decisions are well informed.