What Effect Will a ‘Brexit’ Vote Have on the UK Housing Market?
Before the much anticipated referendum on 23 June 2016, it is expected that activity in the UK housing market will slow significantly despite the usual ‘summer rush’ during that month. Economic uncertainty has always provided the largest mechanism of fear for a prospective buyer or seller, with the risk of adverse changes being simply too great, causing homeowners to grasp hold of their most valuable asset with an even tighter hand.
The actual effect that the ‘Brexit’ vote will have on the housing market will generally depend on the effect that it has on the economy as a whole. According to a study by KPMG, 66% of experts in the real estate industry believe that leaving the European Union would have a negative impact on cross-border inbound investment. This will lead to a lower demand for properties whilst the supply remains largely unchanged, naturally causing property prices to fall. For existing homeowners this might result in negative equity, or at least being required to sell at a loss. This is not necessarily a bonus for first time buyers either for the reasons explained below.
To counter that effect, mortgage lenders will raise their interest rates because of the greater risk of default by borrowers. Not only will an increase in interest rates provide difficulty to existing homeowners in making repayments, this will also mean that first time buyers will struggle to obtain finance to an even greater extent than they are already experiencing. This is the basis of the argument made by George Osborne in his pre-referendum campaign, and based on that principle it appears as though his daunting predictions will be correct.
London, and Central London in particular, is the driving force behind the stability of the entire UK property market nation wide, and it is also the area where the vast majority of investment purchases are made through cross-border transactions. The effect of a downturn in that investment would first cause prices in London to fall significantly, which in turn would cause a fall in prices throughout the whole country.