Theresa May triggered Article 50 of the Lisbon Treaty last week, opening negotiations between Britain and the European Union with a view to Britain’s leaving by March 2019. The issue is of course politically divisive, but is it already having an impact on the housing market?
Nationwide reported that the average price of a UK house decreased by 0.3% in March, the first fall in two years, and contrary to City expectations. This accords with findings from the Bank of England and the British Banking Association that mortgage approvals have dropped.
Could this be linked to Brexit? The decision to leave the EU means, most importantly, two years of uncertainty about the future shape of Britain’s relationship with our neighbours, and the impact on trade and migration has obvious effects on the housing market. Less immigration, or an outcome that saw British exporters face barriers to the single market, would reduce demand for housing: the former meaning there would be fewer potential home-buyers in the country; the latter that many Britons became poorer or less secure in their employment. These effects would hit the housing market over the long term, and only after Britain’s departure. But it is possible that fear over the possibility of such an outcome to Article 50 negotiations is already making buyers – and banks – more cautious.
An effect of Brexit that has already occurred is the fall in the value of the pound. Two effects are important here. One, the resulting inflation is squeezing household finances, with negative demand effects for property. Two, the Bank of England’s Monetary Policy Committee, with its mandate to protect the pound and keep inflation low, has little room for manoeuvre. There seems to be a trend towards hawkishness, as we reported not long ago, with a rate rise closer than we might have thought previously. A rise in the Bank rate would protect the pound and reduce inflation, but would also increase the cost of mortgages – further slowing the housing market. With rates historically low and the unprecedented policy of Quantitative Easing already tried, there is little the Bank could do to stimulate the housing market, even if it didn’t have to care about inflation.
However, predictions are still for house prices to pick up over the year. Brexit doesn’t change the most fundamental fact about the UK housing market: supply is not keeping up with demand. In the words of Howard Archer, UK chief at IHS Markit, “Shortage of supply is likely to put a floor under prices.” Paradoxically, Brexit has a part to play here as well: if uncertainty is making developers, financiers and government more cautious about backing housebuilding (as we reported, the government has dropped its target to have 200,000 new homes a year built), supply will be less than expected. Brexit or not, people will always need somewhere to live, putting a constraint on how far demand can fall. Supply, with its requirement of finance and capital outlay, may be a bigger and earlier casualty of Brexit uncertainty.
In summary, the effects of Brexit on the UK housing market are complex, with potential movement in both directions. A lot depends on which policies banks, the Bank of England, and the government pursue, and how far bad media stories affect consumer confidence. Given that interest rates remain historically low and can only go one way, now might be the time for the savvy investor to make a move on British property, whilst others remain cautious. With big banks some of the most affected by Brexit uncertainty, alternative financing methods, such as the bridging loans offered by Tiger, could help you to capitalise on the situation.
This article was written by Matthew Dailly, Managing Director of specialist bridging loan company Tiger Bridging Ltd.
About Tiger Bridging:
Tiger Bridging is a specialist bridging finance provider with over a decade in the market. They provide short term property funding solutions across the whole of the UK, offering bespoke and flexible lending terms.
Their funding is free from the restrictions imposed by larger institutions or the mainstream lenders. Their small stable of valued and fast-moving investors, complemented by a select group of hedge funds, provide a steady and reliable flow of capital to clients. Their culture is bespoke and their attitude is proactive. If the deal makes sense, they can get the funding, regardless of the credit status of the client.
Company Name: Tiger Bridging Ltd
Contact Person: Matthew Dailly
Phone: 0207 965 7261
Address:Kemp House 152 City Road
Country: United Kingdom