The Brexit newsreel in November was as tumultuous as ever. Negotiations reached a head with the UK Cabinet signing off a withdrawal agreement, approved by EU member states. The deal was met with criticism on all sides in Parliament, resulting in the resignations of two Ministers, attempts to force a vote of no confidence in Prime Minister Theresa May’s leadership and a further slump of more than 2% of the British Pound. Amidst all the chaos, Stan Lee dies. Having transformed Marvel comics with his superheroes, he forgot to leave us ‘Brexitman’. Who is going to save London now?
When it comes to Brexit (or are we now calling it BINO – ‘Brexit In Name Only’?), it seems that uncertainty is about the only thing we can be certain of over the next year. What does this political instability mean for London house prices in the meantime? According to property website Rightmove, asking prices in London have fallen by 1.7% since October 2018. Notably, this is the largest drop in prices London has seen since 2012. This correlates with Reuters’ Nov 13-22 Poll, which anticipated that the market would fall by 1.7% this year and a further 0.3% in 2019. With these statistics and forecasts, it would appear that the high days of rising London house prices significantly outpacing inflation are over. Just in time for the Grinch to steal Christmas.
Demand and turnover in the London market have undoubtedly crumbled since the June 2016 vote to leave the European Union, with property taxes rising and an uncertain economy. While growth has fizzled out and the market is indeed faltering with the Brexit jitters, its impact is far from the Bank of England’s worst-case scenario of a 35% decline in UK house prices following a ‘no-deal’ Brexit.
We expect an increasingly wobbly time for London house prices in the run up to March 2019. Theoretically, it is wise to brace ourselves for a further drop in the market. But realistically, the term ‘safe as houses’ is ringing true; the reason for living in London is as yet unchanged, whether the UK sits within the European Union or not. With this in mind, we predict a slowing of valuations in the London housing market in line with Reuters’ forecasts, where buyers will postpone their decisions during the Brexit fallout over the next six months. This slowdown, however, will not be a complete reversal of valuations as the Bank of England’s stress test may suggest.
Cast your mind back to Christmas 1999. (Yes – London house prices have tripled since then.) Do you recall the Millennium Bug? With the turn of the millennia loomed an electronic meltdown: disaster recovery plans pre-empting power failures; computer systems were backed-up and updated; and, planes were anticipated to fall out of the sky. But, when New Year’s Eve came and went, the problems where relatively minor. The Brexit Bug muddies our outlook in a similar way.
Markets hate uncertainty, and uncertainty is the worst symptom of the Brexit Bug. In the meantime, we believe that we can take solace in there being some certainty that the London housing market will indeed slow down until the UK’s political climate stabilises.
© Treex 2020