What will Brexit mean for the housing market?
Like many, I expect, I retired to bed on the night of 23rd June expecting to awake to the news, next morning, of a narrow win for “remain”. I was still trying to adjust to the real result when Prime Minister Cameron said he had been through enough and a successor would have to cope with the aftermath. Thereafter, news item after news item continued the assault on our capacity to absorb the frenetic pace of events.
On top of everything else, concerns are being raised about the effects of the decision on property markets.
Commercial property is causing concern and commercial property investment funds, such as Aviva and Standard Life, have “frozen” their funds to prevent withdrawals of cash by anxious investors. Bear in mind that most of these investment funds carry cash reserves of no more than 20% - the whole purpose of the fund being to invest in commercial buildings by owning them and renting to generate the return on investment. A run of withdrawals can exhaust the cash fund comparatively quickly, leaving the fund managers with the choice of borrowing against the heritable property or forced sales. Neither option is attractive, hence the decision to “freeze” withdrawals. This is probably very sensible.
For residential property, there will, in some areas be the possibility of a negative effect on activity, caused by a lack of confidence. Confidence in one’s future prospects is an essential of residential property activity. If one feels secure in one’s job then taking on a mortgage is accepted as part of everyday life. If one is lacking confidence then one stays put until the picture clears.
I do not expect the effect of the Brexit decision to make a great deal of difference in our local market, for the following reasons.
Firstly, our market is about two years into a difficult period caused by the oil industry downturn, so we have, to a great extent, already experienced a correction in our market. This has meant that sellers are, in the main, realistic, and deals are taking place, albeit at a reduced level.
Secondly, and perhaps counter intuitively, since most, if not all, new house builders are slowing their construction programmes, the supply side will ease. Thirdly, and perhaps most importantly, interest rates are going to stay low for longer, possibly reducing to zero, enhancing already attractive mortgage products.
Lastly, Mark Carney has signaled a loosening of the capital restrictions on Banks and providing additional funding for lending. While the hope is for that to be utilized in business investment to grow the economy, some of it will leech into mortgage lending.
They say every cloud has a silver lining, and this might, for our area, prove true.