Since Britain voted last year to leave the EU, one of the major talking points has been what impact ‘Brexit’ will have on property prices. In fact according to a recent article in the Financial Times, analysis of Google searches about what Brexit would affect were dominated by property related questions.
"How will Brexit affect house prices?"
"How will Brexit affect mortgages?"
"How will Brexit affect interest rates?"
These searches outnumbered the volume of searches even for hot-button topics like how Brexit will affect immigration or the economy. This probably isn’t surprising given that, for most of us, a property represents our most significant financial investment.
The FT article went on to note that the number of housing transactions during the second half of 2016 was down by 9% annually. Interestingly, this is not something that we have seen in the Scottish market. During the last six months of 2016 Registers of Scotland recorded a total of 54,875 transactions. That’s almost identical to the figure of 55,386 recorded during the second half of 2015.
We also have to consider whether there is actually an element of cause and effect in the UK-wide figures quoted here. Just because sales volumes were lower across the UK than during the second half of 2015, that doesn’t mean that any decrease in volume is attributable to the referendum.
To the extent that sales have been constrained, this has been almost entirely due to a dearth of properties coming onto the market. As Warners has reported on many occasions over the last 12 months, many potential sellers are reluctant to put their property onto the market until they find a property that they want to buy, and this has led to a substantial excess of demand over supply.
What has Happened to Overseas Investment Since the EU Referendum?
One factor that is often cited as having led to a perceived downturn in sales has been the idea that overseas investors have been scared off by the result of the vote. If anything however, the opposite is true. Since the Referendum the value of the pound has fallen making property in the UK comparatively cheap for those looking to buy from overseas.
Andy Whitmey, Director with Umega Lettings, one of Edinburgh’s leading lettings companies said recently: “While we had anticipated that investors might be put off by the uncertainty that this result might cause, this has not been the case with several existing landlords looking to expand their portfolios. We have also seen a 40% increase in enquiries from overseas investors looking to take advantage of the weaker pound and not deterred by the perceived uncertainty that followed the EU Referendum.”
What is Actually Happening, And What Can We Expect In Months Ahead
The reality is that since the result of the Referendum, very little has changed in the Edinburgh property market. In the immediate aftermath of the vote we heard a handful of buyers try to use the perception of uncertainty as leverage in negotiations, but with demand high enough that many properties are quickly proceeding to closing dates, their ability to do this successfully was severely limited.
Of course, it probably shouldn’t be surprising that we haven’t seen ‘Brexit’ have an impact on the market yet for the simple reason that, at this stage, we still haven’t left the EU. Whilst it would be wrong to completely downplay the importance of perceptions and expectations, the market is ultimately dictated by the economic fundamentals underpinning it. Interest rates are still low making mortgage repayments more affordable, unemployment is comparatively low despite a recent upturn north of the border, and the rate at which we are building houses is still not sufficient to keep pace with rising household numbers.
The true impact – positive or negative - of Brexit won’t actually be known for quite some time yet. As the terms of Britain’s exit from the EU are only now being negotiated, it is much too early for anyone lacking a reliable crystal ball to make forecasts with any certainty. Downside risks certainly exist, but that is true of any market regardless of the political landscape.
What we can say with certainty is that we are continuing to see an especially strong market for sellers in Edinburgh and the Lothians. That’s good news for investors and anyone looking to downsize, but less positive for first-time buyers anyone looking to move up the property ladder. We do expect to see some improvement in the supply of properties coming up for sale as the year progresses and this will help bring a little more balance to market, but the balance of power is likely to continue to favour sellers for the foreseeable future.