"The penny is dropping that if you sell at a lower price, you can generally buy at a lower price, too"
Robert Gardner, Nationwide's Chief Economist, said: “UK house prices increased by 0.5% in July and, as a result, the annual rate of house price growth was little changed at 5.2%, compared with 5.1% in June. This is the first month’s data following the EU referendum. However, it is important to note that, in constructing the index, we use data at the mortgage offer stage – this means any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage.
Housing market outlook unusually uncertain
It will be tempting for commentators to assign any trends in the coming months to the impact of the referendum. Housing market transactions were always likely to soften over the summer after the surge in activity in March, as buyers brought forward purchases of second homes to avoid the stamp duty levy, which took effect in April. Determining how much of any fall-back in activity is the result of the tax changes and how much is due to the referendum will be difficult.
In the near term, increased economic uncertainty may lead to weaker demand for homes. Leading indicators are consistent with softening ahead. Household confidence fell sharply in the wake of the referendum result, especially attitudes towards making major purchases, which in the past has correlated with mortgage activity, though less closely in recent years. In the run up to the vote the Royal Institute of Chartered Surveyors (RICS) reported declines in new buyer enquiries and expectations of weaker price growth amongst surveyors, though these trends pre-date the vote and are likely to have been impacted by the recent tax changes as well as the referendum.
How the labour market evolves will be crucial in determining the demand for homes in the quarters ahead. It is encouraging that conditions were robust in the run up to the vote, with the unemployment rate falling to a ten-year low in the three months to May. The decline in long term interest rates to new all-time lows in recent weeks should also help to keep borrowing costs low and provide some support for demand.
Even if there is a fall back in demand as a result of economic uncertainty, the impact on house prices is not certain, as potential sellers may also hold off from placing their properties on the market. The stock of homes on estate agents’ books is already close to its lowest levels for thirty years, and surveyors have reported a decline in new instructions to sell alongside a fall in buyer enquiries. Moreover, housebuilders may react to the uncertainty by delaying construction, even though home building is already failing to keep up with the natural increase in the population."
Jonathan Hopper, managing director of the buying agents Garrington Property Finders, had this to say: "While you can't read too much into the July house price rise, what is certain is that there hasn't been a crash in property prices since Brexit, more of a soft landing. For the time being at least, grim predictions of a sharp fall in house prices simply haven't materialised. The sheer lack of supply is helping to prop prices up. Estate agents' stock levels have rarely been so low.
Yes, the pendulum has swung largely in favour of the buyer since Brexit, but it's by no means a black and white market. Certain properties are still making it to best and final offers, with the seller holding all the cards. Many sellers have started to take the medicine and are lowering their frankly unrealistic asking prices to reflect current market conditions.
The penny is dropping that if you sell at a lower price, you can generally buy at a lower price, too. Other sellers, however, are refusing to budge and are in a Mexican standoff with would-be buyers. The gap between what they are prepared to sell at and what the buyer is prepared to offer is widening. At the high end of the market, the new stamp duty rules have had a far bigger impact than Brexit. Even for wealthier people, the cost of moving is now simply too high.
If an interest rate cut comes in August, and it's looking likely, that will inject additional confidence and activity into the market. How the jobs market holds up will also influence the trajectory of house prices. While August is likely to be relatively quiet, September should see a seasonal uplift. By that point, many people will have decided to simply get on with their lives.
At the same time, some wealthier households may sit on their hands to see if there are any about-turns or even slight adjustments to stamp duty in the Autumn Statement under the new Chancellor."
Randeesh Sandhu, CEO of Urban Exposure said: “Against all expectations and despite all the downbeat assessments of the housing market in the aftermath of Brexit, we are greatly encouraged that house price growth has accelerated in July. But, looking forward we expect the rate of price growth to slow as data elsewhere shows there has been an impact from the vote on confidence. As a result, we expect buyer caution to have a knock-on impact on pricing in the short-term as the market continues to assess the fallout.
However, we do not expect a pronounced slowdown in transaction activity as the low interest rate environment, mortgage availability for buyers and ongoing government initiatives encourage buyers back into the market. As a result, we believe house prices will recover in due course, fuelled by the reported slowdown in construction activity which may further widen the supply/demand gap. It will be several months before the true picture emerges of how homebuilders, lenders and consumers will collectively respond to this new reality. But we remain confident in the longer term picture for UK property.”
Randeesh Sandhu, CEO of Urban Exposure said: “Against all expectations and despite all the downbeat assessments of the housing market in the aftermath of Brexit, we are greatly encouraged that house price growth has accelerated in July. But, looking forward we expect the rate of price growth to slow as data elsewhere shows there has been an impact from the vote on confidence. As a result, we expect buyer caution to have a knock-on impact on pricing in the short-term as the market continues to assess the fallout.
However, we do not expect a pronounced slowdown in transaction activity as the low interest rate environment, mortgage availability for buyers and ongoing government initiatives encourage buyers back into the market. As a result, we believe house prices will recover in due course, fuelled by the reported slowdown in construction activity which may further widen the supply/demand gap. It will be several months before the true picture emerges of how homebuilders, lenders and consumers will collectively respond to this new reality. But we remain confident in the longer term picture for UK property.”
Ian Thomas, co-founder and director of LendInvest, had this to say: “The fundamentals of the property market remain strong. There is an acute shortage of new housing being built, and with an interest rate cut apparently on the horizon, borrowing will become even cheaper. Demand will continue to outstrip supply.
The Prime Minister has talked about wanting to ramp up housebuilding, but now we need action. This isn’t an issue that can be kicked into the long grass.”
