Monthly Market Review – July 2016

In the weeks preceding the EU referendum vote the property market remained quiet pending the outcome. The unexpected majority vote to leave the EU caused shock reactions in financial markets, a major fall in the value of sterling against other major currencies, and a flood of attempted sales of shares in commercial property funds. In the residential market, immediate reactions have varied between fearful and opportunistic amongst buyers and sellers, as they attempt to rationalise what Brexit really does mean to them. The situation was not helped by the infighting in both the Conservative and Labour parties and the political uncertainty created as a consequence.

A wide range of market outlooks have been speculated by economists – both bearish and optimistic, but in essence with so many ‘unknown unknowns’ it is arguably premature to reach too many sweeping generalisations about the whole of the market at this time. There are however a series of trends already emerging from different parts of the market from which to base logical sector views.

High tide for prices?

A series of national house price indices released shortly after the vote all recorded positive price growth in June which, given the ongoing purchaser demand during the build up to the vote and limited supply of houses, should come as no surprise. Nationwide reported a monthly rise of 0.2% whilst Halifax recorded a surprising 1.3% monthly gain in average house prices. All this data reflects market conditions before the referendum result, and many are speculating that this is likely to be a ‘high tide’ point for house price inflation this year.

Meaningful data recording exactly what has happened since the vote will not begin to emerge until August and September. However, using the Rightmove House Price Index as a forward indicator, asking prices have fallen 0.9% month on month in their latest data, and buyer enquiries are 16% lower than this time a year ago. This trend was also reported by the Royal Institution of Chartered Surveyors who suggest buyer enquiries have fallen amongst their members to their lowest level since 2008. Within two weeks after the referendum, new stock entering the market has reportedly increased by 6%, but in historical context, the stock of available property for sale still remains at very low levels, and 16% lower than in 2014.

Much needed clarity

Following what became a fast-tracked Conservative leadership election, the appointment of Theresa May as the UK’s next Prime Minister has brought a level of clarity to both financial and property markets. With swift confirmation of who had been appointed into the new Government and a revived focus in Downing Street, attention has now shifted to predications on how key policy decisions may unfold.

The Governor of the Bank of England has made it clear that the Bank will take whatever action it deems appropriate to prevent a return to recession. Whilst it has so far elected to refrain from cutting the Base Rate any further from the already low rate of 0.5%, it has other measures which it can use.

The Financial Policy Committee within the Bank has already cut what is known as ‘the UK countercyclical capital buffer rate’ from 0.5 per cent to 0 per cent of banks’ UK exposures, thus paving the way for banks and building societies to increase lending volumes and importantly reducing the risk of a repeat of the credit crisis.

Which way next?

The perception that Brexit has had a significant impact on the property market is inaccurate. In reality the rate of house price inflation has been easing for a number of months already this year, and many would argue that stamp duty reforms have had a much wider and deeper impact on the housing market than Brexit.

The trend of lower house price growth is therefore unlikely to change in the short term. Greater uncertainty will play heavily on some buyer’s minds, and a fall in demand will take heat out of the market. However, supply is also likely to remain subdued, given the number of equity rich property owners who will not be experiencing any immediate pressure to sell, especially at what they may consider to be a discounted price. These factors combined will adversely affect sale transaction volumes from an already low base, but also offset any price falls.

It remains unclear as to whether there is going to be any revisions to tax or stamp duty rates to further support the housing market. The newly appointed Chancellor Philip Hammond has already ruled out an imminent emergency budget, so confirmation on these points is unlikely to surface until the Autumn Statement.

The summer months are traditionally a quiet period for the property market, and will provide breathing space for greater clarity to the future economic and political outlook, on which we will comment next month.