Why Brexit is killing the London housing market
With the continued indecision surrounding Brexit and the final divorce settlement still months away, it seems property buyers are choosing to adopt a wait and see attitude towards the housing market.
The latest research from Rightmove shows a boom in properties coming on to the market, but “no corresponding increase in buyer’s numbers to soak up the new seller influx”.
The supply surge comes from recent stamp duty increases and the removal of tax breaks for buy-to-let investors, combined with the slowdown in international buyers.
Despite an initial increase in overseas interest following the Brexit vote and weakening of the pound, we have witnessed international buyers take a step back from the London housing market, ultimately contributing towards a decline in property prices.
After a long period of time with a marked lack of properties on the market, it is now inundated by more properties than at any time since September 2015, with the number of properties coming onto the market increasing by 8.6% since last July.
As a result, sellers and agents are starting to realise that they have been overly optimistic with their pricing in the current market, and as a result, they are having to drop prices by as much as 10% to attract buyers.
Many buyers, especially first-time buyers, are hedging their bets that sellers will continue to drop their prices, and so far, they have not been wrong. In the capital, the biggest of these cuts occurred in Hammersmith and Fulham (-3.3%) Ealing (-3.4%) and Hackney (-3.5%), offering buyers hope that they will soon be able to afford a home in London and therefore they are choosing to keep their hands in their pockets for now.
This local buyer shortage shows how delicate our housing market currently is, and the current political uncertainties will do little to help build confidence amongst sellers and landlords.
However, while these consequences seem never ending, there is light at the end of the tunnel, with London’s long-term potential looking to remain enormous if those in the market are willing to break away from the traditional methods.
Fundamental changes are taking place in the rental market, with the younger generation favouring the flexibility of being close to their workplaces, as they tend to change jobs more frequently than before. This has led to a renewed vitality of rentals, with home ownership rates dropping by 9% since 2009. Because of this thriving rental activity, current homeowners can alleviate the downward trend by embracing more creative rental opportunities, such as short-term lets.
It is also important to remember that London continues to be a solid service-centric economy, which will continue to boost its attractiveness to buyers and renters alike. Given time, London will soon recover from the consequences associated with Brexit, regardless of when a deal is made, and in the meantime, the market can take advantage of its allure for global leisure and business travellers.
This will not only help landlords who are looking to make the most out of their properties, as the weaker pound and hopefully minimal visa requirements will help to drive tourists to the UK but will also act as buffer for people who are unable to sell their properties right now.