Almost 2 weeks after the UK somewhat surprisingly voted to leave The European Union, the dust is now starting to settle. Focus has shifted away from the merits of the decision and onto the implications, specifically how the UK will negotiate an exit. With a new prime minister and cabinet now in place, the fog of uncertainty is starting to lift and we can soon expect a timeline, and more importantly, a plan for every market to respond to positively. Looking at this specifically in the context of the London property market, the two questions all my clients are asking are:
- How much is my property worth now/should I be offering less for the property I was going to buy?
- How will it affect banks’ lending policy; will it now be harder to get a mortgage?
In very simple terms, the fact London property is so much more expensive than the rest of the country is a bi-product of straightforward economics. Demand has far outstripped supply for a number of years, resulting in a rise in price. So will Brexit affect this demand?
Essentially, the answer is hardly at all, although I would expect a shift in where demand comes from. Foreign investors and ex-pats are already showing huge interest in buying on the back of the drop in Sterling, countering any reduction from UK buyers thinking twice. My clients who were mid-way through a purchase after the result was announced, have all either completed or exchanged contracts with loans between £1,000,000-£2,000,000. Equally, even if demand reduces slightly over the coming months, it will continue to be much stronger than supply. With developers being hit particularly hard with funding lines post-Brexit, don’t expect a flood of new homes to increase housing supply in the short to medium term.
Considering the effect Brexit is having on lenders, the overwhelming message I have received from private, offshore, challenger and high street banks is the same: it’s business as usual. With a base rate cut from the Bank of England now inevitable, the cost of borrowing will hit a record-low. Undoubtedly this will stimulate demand, which after all, is the fundamental purpose of any monetary policy easing. Let’s not forget that banks need to lend to be profitable.
If demand for mortgages falls, whatever the circumstances behind it may be, lenders will always ease their criteria to attract business. In my view Brexit will be no different as banks need, and still want to, lend. So far from making it harder to get a mortgage, I expect quite the opposite for the vast majority of clients. This will encourage potential buyers to go ahead now, rather than adopting the herd “wait and see” mentality, which seems to be the standard media consensus.
Brexit will have very little, if any, effect on the London market in the medium term. In the short term lenders will continue as before and prices may stagnate but certainly not fall off a cliff (as speculated). London is one of, if not the most, resilient property market in the world. It always has and always will continue to rise significantly every 10-year cycle. Brexit may have slowed things temporarily, yet this represents a great opportunity to take the decision to buy or refinance now. Borrowing will never again be as cheap as it is now, and prices will continue to rise after a short period of flat lining. The time to make a move with your mortgage is now.