In times of uncertainty markets psychology has a strong impact over the investing mentality and can lead to unexpected changes.
As the government and markets work out what the new political and economic landscape is going to look like we can surely expect a time period where “wait to see” attitude will be adopted by many buyers but that doesn’t mean that we are going to see considerable changes in house price growth however as we are already seen property market will further slowdown as buyers delay purchases due to Brexit negotiations and other economic conditions.
The road so far
In the months after the referendum, house price growth has slowed, while UK housing transactions in the second half of 2016 were 9 per cent down on the same period in 2015.
Even though London house prices have been affected the most, its price growth turned out to be more resilient to the uncertain environment of the market, recording an annual 5.6 per cent in February, a rate that maybe the weakest since May 2013, but still held up much better than everyone feared.
Now that it is official
Given the triggering of Article 50 by Prime Minister Theresa May, buyers will be more cautious especially in London, as buying a home in the capital is a bigger financial commitment than elsewhere in the UK and if the curve of transactions continues to drop, then inescapably is going to have a negative effect on the UK’s market, forcing the prices down, particularly in London which has also been affected by the increases in stamp duty and unsustainably high prices for a long time.
What about tomorrow
As Hometrack said “Predicting what the long term effects of Brexit to the housing market will be, and how long they will last is far more challenging. It all depends upon the economy. If growth continues, albeit slower than previously expected, then the impacts may be short-lived. But if the economy starts to take a broader hit to jobs growth and investment then the impact on housing could be more prolonged.”
There are two scenarios. If the pound weakens further, inflation surges, and interest rates are raised, the capacity for house price growth would be reduced. On the other side, if Brexit negotiations are successful, promoting economic growth, and confidence is boosted again, house prices could increase earlier and at a faster rate than initially expected.