Uk
Residential mortgages unlikely to be affected in short term by Brexit vote
Home mortgages in the UK are unlikely to be affected immediately by the decision to leave the European Union, according to finance commentators. However, it could be good news for first time buyers if price growth slows and interest rates fall with some experts predicting that the Bank of England might reduce rates even further than the current historic 0.5%. In the short term, people’s attention will be on interest rates and what impact this will have on mortgage costs, according to the Council of Mortgage Lenders. ‘While markets are bound to react to the news, the question will be how long it takes for them to settle. We know the authorities will be mindful of this,’ said the CML spokesman. In the medium term, there will also be interest in the extent to which housing transactions are affected by economic uncertainty, and whether this will impact on house prices. The more quickly markets resettle, the lower the impact on the housing market is likely to be. However, any prolonged disturbance would inevitably impact the housing market. ‘For lenders, the treatment of customers and of mortgage applications will be business as usual. People who have received mortgage offers will not see them affected. People facing financial difficulty will continue to be treated constructively and positively,’ the CML spokesman explained. ‘Lenders remain open for business as usual. Mortgage pricing is unlikely to react instantly, although pricing may be affected in the foreseeable future because of the effect on lenders’ cost of funds arising from the perception of economic uncertainty. How long this lasts will depend on how quickly markets resettle,’ he added. Indeed, Mark Carney, governor of the Bank of England, quickly announced that any measures needed to support financial markets and the UK economy would come into play. These measures could include a cut in interest rates that could reduce home owners' monthly mortgage payments, a measure repeatedly taken during the financial crisis of 2008. James Roberts, chief economist at real estate firm Knight Frank, believes that an interest rate cut is on the cards. ‘We expect the Bank of England, seasoned by the experience of financial crisis, to respond quickly. An interest rate cut of 25 basis points is a strong possibility at the Monetary Policy Committee's July meeting, or perhaps earlier if required,’ he said. Continue reading
UK commercial property market could see short term weakening due to Brexit
The UK commercial property market is likely to see a weakening in demand due to the decision of the British people to leave the European Union. Foreign investors in particular are likely to cool while the terms for the country to leave are thrashed out as uncertainty about direction and timing affect decision making, according to experts. Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018 when the actual exit is likely to take place, such a major change will inevitably create uncertainty in the economy and real estate markets, according to Chris Ireland, chief executive officer of JLL UK. He explained that in the event of a well-managed exit these impacts will be largely confined to the UK. ‘In the short term we may see a weakening in occupier demand. The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,’ said Ireland. ‘Investor sentiment may also remain subdued in the short to medium term. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key,’ he pointed out. ‘Much will depend on the speed of negotiation, the wider political picture and whether a clear direction of travel and timetable for an EU exit is established early on,’ he added. According to an analysis by JLL occupier demand will weaken in line with economic growth and declining business sentiment. The impact on rents may be limited by tight supply, but activity will be adversely hit. It also suggests that investor sentiment will deteriorate further, subduing capital flows in the short to medium term and there is likely to be a negative capital value adjustment over the next two years, estimated at a fall of up to 10% with yields moving around 50bp. It points out that London sectors remain most vulnerable to correction given current keen pricing and their multinational occupier base but much will depend on the speed of negotiation, the wider political picture and whether a clear and favourable direction is established early on. According to Mark Clacy-Jones of international real estate firm Knight Frank the decision will cause volatility across all investment markets, and real estate will be no exception and he predicts that uncertainty over future economic conditions in the UK will cause some deals on hold to be shelved, and occupiers will reconsider the amount of space they need outside of the single market. ‘A fall in the value of sterling, combined with falling property values will be a buy sign for opportunistic overseas investors once the initial correction has occurred. This will cause a widening yield gap as real estate yields rise and bond rates fall from further Bank of England monetary loosening and will make property… Continue reading
Prime property market in London set to be affected most by Brexit
The prime property market in London is likely to be the affected the most by the referendum results in the UK which will see the country leave the European Union. Sales activity and price growth in the prime London residential market have already both slowed since the middle of 2014 and in the run up to the historic vote many commentators and experts were predicting that a vote to leave would affect London the most. ‘There is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market. Some demand, especially from investors, will be delayed and in some cases redirected to other markets although the significance of these trends should not be overstated,’ said Liam Bailey of international real estate firm Knight Frank. He explained that demand for prime London property rests on a wide range of drivers most of which are unaffected by the referendum decision such as the scale of London’s business cluster, depth of skills, education, lifestyle and language. ‘It is not easy to identify an obvious alternative destination for investors despite short term nervousness. On the eve of the vote the pound sat 14% below its mid-2014 peak meaning pricing in the prime market was more attractive for dollar buyers. While a further weakening of the pound could increase inward investment, this impact will be constrained by the fact that around 80% of central London buyers are UK residents,’ he pointed out. ‘It seems a reasonable assumption to make that interest rates will be lower for longer, despite the risk of imported inflation from a weaker pound. While the long term benefit of ultra-low interest rates on the housing market may be questionable, in the short term they will act to underpin demand especially for equity rich buyers with access to the best funding rates,’ he added. Bailey also believes that the prime country house market will be similarly impacted by the result. ‘However while the market has performed relatively well over recent years, following a slow recovery immediately after the financial crisis, prices have not tracked London to date and there is scope for some outperformance in the short to medium term,’ he said. ‘While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe haven appeal,’ he concluded. The decision to leave has opened up a Pandora’s Box as far as the London property market is concerned and for overseas buyers, this big and dramatic drop in the value of Sterling will effectively offset the Stamp Duty and tax adjustments and it will make prime London property a lucrative investment for overseas investors bold enough to make a decision to buy despite the market uncertainty, according to Peter Wetherell, chief… Continue reading
