The UK housing market continued to be buoyant in the first quarter of 2016. Activity was fuelled by the rush to complete buy-to-let property transactions before the stamp duty change on second properties came into effect in April. Consequently, house purchase activity experienced a sharp fall in April, which was especially evident for buy-to-let.
Director General of the Council of Mortgage Lenders (CML), Paul Smee commented on recently released April lending statistics, “There is a sense of calm after the storm this month, as lending eased back, following the significant rises in activity in March as borrowers looked to beat the second property stamp duty deadline. We expect the market to take several months to return to its previous levels after the lending surge.”
London prices declining
In London, house prices are already declining in parts of the capital, a trend that the Royal Institution of Chartered Surveyors (RICS) expects to continue over the next few months. How much of this is due to the postponing of planned purchases ahead of the outcome of the EU referendum is hard to gauge, but elections of any sort are notorious for putting a temporary hold on housing market activity.
The outlook for the rest of the year
The uncertainty post the Brexit vote is likely to affect many factors impacting the property and lettings market. Prior to the vote David Cameron warned mortgages could rise by £1k per year; many now expect interest rates to be cut, possibly to zero, so costs could actually fall.
Negative investor sentiment hit immediately after the vote, as shares in estate agents and housebuilding firms collapsed. It’s too early to determine the full effect of Brexit on property transactions and valuations; the ramifications will unravel over time. Lucian Cook, UK Head of Residential Research at Savills commented: “With the results just in, it is impossible to predict what will happen to the UK housing market with any great accuracy until we know what Brexit will mean for the wider economy. What we do know from lead indicators, is that uncertainty pre-referendum impacted on new buyer enquiries. A continuation of that uncertainty is likely to pull back price growth and transactions in the short term.”
The CML concur that one of the first elements of the market likely to be affected is property transactions, which will in turn dampen house price growth; while this uncertainty will linger for some time, house prices remain underpinned by sound fundamentals. They believe there will be particular uncertainty in the prime London market, where a higher proportion of buyers are foreigners, who may delay their purchase to assess the impact of the referendum result. However, the CML believe the characteristics of the UK housing market are unlikely to change dramatically in the near term, as there will continue to be a mismatch of supply and demand, stretched affordability and a relatively low number of home movers