The Brexit referendum of 23rd June 2016 feels like a long time ago. It took almost 10 months for Article 50 to be triggered (on the 29th March 2017). While this marked the start of the two-year negotiating period, the start of the actual negotiations was delayed by the fact that the UK parliament called a general election for 8th June 2017. Hence we now find ourselves about a year on from when Brexit was first decided and it’s interesting to take stock of the situation.
Home sales are down but is Brexit the only reason?
According to figures from HMRC, housing transactions in the second half of 2016 were 9 per cent lower than in the second half of 2015. Given the timing, it’s hard to dispute that the result of the Brexit referendum would have played a part in this. At the same time, however, it’s an open question as to whether Brexit itself was the only reason or even the main reason. Taking a step back in time, the Summer Budget of 2015 saw a change to mortgage interest relief for landlords, which had the potential to cause a significant negative impact to the finances of higher rate taxpayers who were also landlords. Shortly after this, the government also announced the “Right to Rent” scheme, which was rolled out in February 2016. Both of these changes were pre-Brexit and both could well have motivated at least some landlords to exit the market or at least reduce their portfolio, which could potentially account for at least some of the drop in transaction volume between 2015 and 2016.
House-price inflation in London stalls
Overall, London is still experiencing house-price inflation, just at a lower rate than in recent years. Again, Brexit could well be a factor in this, particularly the fact that the City is openly nervous about where it will stand in a post-Brexit world. At the same time, however, it should be noted that the 2012 Olympics led to parts of London being significantly regenerated, which caused substantial house-price inflation. During the intervening five years, these increased prices have become a new reality and there is nothing of the nature of the Olympics currently on the horizon to give house prices another boost. At the same time, successive governments have been investing in the north of England, with the Media City initiative beginning long before the concept of the Northern Powerhouse was first mooted. Northern cities such as Manchester have been experiencing house-price inflation at higher levels than London, which suggests that at least part of the slowdown in the London housing market, could be the new competition from further north.
The mortgage market carries on
Arguably the biggest shake-up of the mortgage market in recent years came in April 2014 as a result of the Mortgage Market Review. In very simple terms, lenders now have to look beyond a borrower’s headline income and analyse the real-life affordability of a loan over the long term. Given that Brexit is effectively a step into the unknown, it’s hard to see these rules changing to become less strict at any point in the near future, so in that sense, it’s likely to be business as usual regardless of what form Brexit takes (or even if it’s cancelled). Where Brexit could potentially impact the mortgage market is if it results in upward pressure on inflation. This would not only impact affordability calculations in and of itself, but also place the Bank of England under pressure to raise interest rates and therefore the cost of financing, which would probably be most unwelcome to those with existing mortgages and could potentially discourage people from entering the housing market or moving to bigger properties.