On 23 June 2016, the UK will be holding a referendum addressing the question of whether the UK should remain a member of the EU, or leave the economic and political union consisting of 28 member states.
Every individual who votes on 23 June 2016 will have their own reasoning for voting to leave or voting to remain. While it is currently uncertain as to what the outcome of the referendum will be, one thing is clear; the UK’s housing market is currently shrouded in uncertainty. So while the political posturing of the leave and remain campaigns continues to gather steam, individuals looking to sell, buy or let properties are currently in limbo.
As highlighted by the period prior to the vote for Scottish independence and the period prior to the general election in the UK, when the political landscape of the UK is shrouded in uncertainty the housing market stalls.
While the political campaigns offer various reasons to justify their stance and in order to obtain your vote, at Ison Harrison Solicitors, we understand that the majority of people who are looking at the housing market with their interests in mind. Many individuals simply want to know what effect the referendum and its outcome will have upon their decision making, whether it is in relation to a decision to sell, buy or let.
In Or Out The EU?
A vote to remain in the EU would provide investors, companies and individuals with the knowledge that there would be no changes to the housing market in the UK as regards the current processes and procedures governing the market. However, economists argue that house price increases within the UK are likely to stall no matter the outcome and have highlighted that prices cannot continue to soar without an eventual lack of buyers.
A vote to leave would create a period of uncertainty over the UK’s housing market while a deal would have to be drawn up and agreed with the EU setting out the terms of the UK leaving. This could have an effect on the housing market in the UK, however, any suggestions put forward, whilst based on research and specific business sector knowledge would be arguable. Put simply, a vote to leave would create an unprecedented economic and political situation.
Below, we explore the impact that the EU referendum is having on buyers, buy-to-let landlords and sellers:
Impact on Buyers
The Treasury has indicated that should the UK leave the EU, housing prices would drop by 8% over the next two years; should the UK remain, house prices will be set to rise by 10%.
Fitch Group, a global leader in credit ratings and research has stated that housing prices could fall by as much as 25% should the UK vote to leave the EU.
Over the past 10 years the average price of a house in the UK has risen by £657 a month and there seems to be a commercial consensus that the UK’s housing market cannot continue in the same vein it has over the last few years.
The housing market in the UK has hit an all-time high, however, it appears to be losing steam and Paul Smith of Haart Estate Agents has commented that as a nation, the UK is now nearing its limit in the terms of house prices. He comments that “at some point you have to run out of buyers”.
The amount of active buyers per available property has dropped to less fewer than five people per property, from ten in mid-2015.
A fall in the price of housing may not particularly be a bad thing and would seek to balance the average property price and bring it back down to more sustainable levels.
Accordingly, many individuals that are looking to purchase a property are simple playing a waiting game. In the event that the UK leaves the EU many buyers may possibly be able to purchase a property for a cheaper purchase price if the Treasury is correct. As such, buyers seem to be awaiting the outcome of the referendum before proceeding with property purchases.
Impact on Buy-To-Let Landlords
Buy-to-let landlords were affected by the Spending Review and Autumn Statement 2015, when the government announced that Stamp Duty Land Tax and the rules governing the same were to be changed.
This resulted in a rush for landlords to push through purchases prior to the changes coming into effect on 1 April 2016. Accordingly, a slump in the housing market was expected due to sales being brought forward.
A study by the National Association of Estate Agents speculates that a falling demand in rental properties could lead to private landlords looking to sell their properties.
If housing prices were to fall, this would affect buy-to-let landlords directly as it would seek to lower the amount they could charge their tenants. If this was to happen, you can expect to see landlords competing with other landlords in order to secure tenants by offering lower rental amounts. However, the study suggests that the impact would be minimal for the first three years following a vote to leave.
Impact on Sellers
The current economic and political uncertainty in the UK due to the impending EU referendum has caused housing price increases to stall and economists are warning that should the UK leave the EU it will affect the UK’s housing market negatively.
Sellers may have concerns of falling house prices, however, unless you are a buy-to-let landlord or are looking to sell your property and move abroad, the price of housing should not have a severe impact. The effect would be universal and any reduction in sale prices would be balanced by reduced purchase prices.
Property owners are likely to delay any decision to sell until after the referendum has taken place, however, it appears that the EU referendum is not the only factor contributing to the current ‘stall’ in the housing market. Put simply, if housing prices continue to rise as they have over the last couple of years eventually sellers will run out of buyers who can afford to purchase a property.
Post Referendum…
Economists and politicians alike have been arguing that house prices within the UK will slump if the UK votes to leave the EU due to a falling demand in housing. On the other hand, it is being argued that if the UK votes to leave, the current shortage of housing will not be improved due to a lack of skilled workers within the construction sector.
One thing is clear, the arguments being put forward by both the leave and the remain campaigns are based upon assumptions. The UK is currently facing a period of political uncertainty and the housing market will remain shrouded with uncertainty until the UK has voted and made a decision as to whether it is to remain within the EU.
Whether the UK votes to remain or to leave the EU, the housing market is predominantly affected by confidence and it is unclear what the outcome will be should the UK decide to
leave the EU. At the same time, should the UK remain a member of the EU, it is unlikely that housing prices can continue to increase as they have in recent years. There will simply be too many people priced out of buying a property.
If you are considering purchasing or selling a property you can contact our Client Satisfaction Manager, Sarah Whincup on 0113 284 5008. Sarah will be more than happy to discuss any queries that you may have.
