Latest house price index shows no Brexit effect on UK property prices

House prices in the UK increased by 0.5% month on month in July, defying the vote to leave the European Union which many commentators though would have an adverse effect on the nation’s property market.

It means that the annual rate of house price growth edged up from 5.1% in June to 5.2% in July, taking the average price of a home to £205,715, according to the data from the Nationwide House Price Index.

It is the first index from a major lender to be published since the historic vote on 23 June and overall the index report says that the UK housing market is still seeing steady growth. However Nationwide chief economist Robert Gardner said it is important to note that the index is based on data at the mortgage offer stage so there still might be an impact in future data.

‘It means any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage,’ he explained.

He also believe that the outlook can only be described as uncertain. ‘It will be tempting for commentators to assign any trends in the coming months to the impact of the referendum. Housing market transactions were always likely to soften over the summer after the surge in activity in March, as buyers brought forward purchases of second homes to avoid the stamp duty levy, which took effect in April,’ he pointed out.

‘Determining how much of any fall-back in activity is the result of the tax changes and how much is due to the referendum will be difficult. In the near term, increased economic uncertainty may lead to weaker demand for homes. Leading indicators are consistent with softening ahead. Household confidence fell sharply in the wake of the referendum result, especially attitudes towards making major purchases, which in the past has correlated with mortgage activity, though less closely in recent years,’ he added.

He also pointed out that in the run up to the vote the Royal Institute of Chartered Surveyors (RICS) reported declines in new buyer enquiries and expectations of weaker price growth amongst surveyors. ‘Although these trends predate the vote and are likely to have been impacted by the recent tax changes as well as the referendum. How the labour market evolves will be crucial in determining the demand for homes in the quarters ahead. It is encouraging that conditions were robust in the run up to the vote, with the unemployment rate falling to a ten-year low in the three months to May,’ Gardner said.

‘The decline in long term interest rates to new all-time lows in recent weeks should also help to keep borrowing costs low and provide some support for demand. Even if there is a fall back in demand as a result of economic uncertainty, the impact on house prices is not certain, as potential sellers may also hold off from placing their properties on the market,’ he explained.

He also explained that the stock of homes on estate agents’ books is already close to its lowest levels for 30 years and surveyors have reported a decline in new instructions to sell alongside a fall in buyer enquiries. ‘Moreover, house builders may react to the uncertainty by delaying construction, even though home building is already failing to keep up with the natural increase in the population,’ he added.

According to Alex Gosling, chief executive officer of online estate agents HouseSimple there's a danger that commentators could create a property market slump by talking up the downside of Brexit when actually the market is fundamentally in good health.

‘If everyone was expecting property prices to fall off a cliff post Brexit, so far, that simply hasn't happened. In fact, average prices actually rose to record levels in July, hardly the end of the world stuff that Remainers were predicting,’ he said.

‘We did see a temporary lull in buyer and seller activity immediately after the vote, but by the end of the month it felt like business as usual. The referendum may simply have offered a chance for the market to take a breather and re-balance. What we do expect to see are buyers negotiating a little more in the coming months, and it's probably fair to say that a market that's been heavily in favour of the seller for a while, is now a more level playing field,’ he explained.

‘However, with new stock at ridiculously low levels in many areas, buyers are still going to need to make strong offers to secure the best properties coming onto the market. August is generally quiet for property transactions, so we might need to wait until September to gauge any longer term damage, if any, Brexit may have caused,’ he added.

It should be remembered that the UK property market is one of the strongest in the world, said Russell Quirk, chief executive officer of eMoov. He pointed out that historically house prices are higher than July 2014 and July 2015, so it’s looking pretty healthy across the board.

‘It’s important UK home sellers take any Brexit doomsayers and their forecasts with a pinch of salt and avoid acting irrationally where the sale of their home is concerned. We are entering a traditionally slower time for the property market and so this cool in price rate growth is always likely to happen during the summer months. Once September rolls around again we predict things will start to pick up and prices will continue their sharp ascent,’ he added.

Randeesh Sandhu, chief executive officer of Urban Exposure, said he is encouraged by the index figures. But he expects the rate to slow as buyer caution is likely to have a knock-on impact on pricing in the short term as the market continues to assess the fallout of the Brexit vote.

‘However, we do not expect a pronounced slowdown in transaction activity as the low interest rate environment, mortgage availability for buyers and ongoing government initiatives encourage buyers back into the market,’ he commented.

‘As a result, we believe house prices will recover in due course, fuelled by the reported slowdown in construction activity which may further widen the supply/demand gap. It will be several months before the true picture emerges of how homebuilders, lenders and consumers will collectively respond to this new reality. But we remain confident in the longer term picture for UK property,’ he added.

The figures are proof of the market’s underlying strength in uncertain times, according to Rob Weaver, director of investments at property crowdfunding platform Property Partner. ‘No one really knows what the full impact of Brexit will be on the economy but while more volatile assets like stocks and shares fluctuate and falter, investors in UK residential continue to earn a stable, positive return,’ he said.

‘But if the past is any indicator of the future, there’s still no concrete evidence to imply this broad, continuing upward trend in house prices will change any time soon. The key determinants, ultimately, are economic conditions. Home buyers should be encouraged by a robust labour market and solid employment growth, particularly in London, and historically low borrowing rates which could drop even further,’ he pointed out.
 
‘Yet fundamental to the housing market is that Britain simply doesn’t have enough homes. Brexit or no Brexit, demand outstrips supply, which is further exacerbated by a growing population. The disconnect between supply and demand will continue to put upward pressure on the housing market over the medium to long term,’ he explained.

‘And even if prices dip, it will at least provide a solid floor. Buy to let investors should be consoled that if house prices level off for a while, they’re still producing a relatively substantial income. Even after all costs, landlords can still earn between five and 10 times current interest rates, depending on the type of residential tenure and where it is,’ he added.

Jonathan Hopper, managing director of the buying agents Garrington Property Finders, believes that for the time being at least, grim predictions of a sharp fall in house prices simply haven't materialised as the sheer lack of supply is helping to prop prices up.

‘Certain properties are still making it to best and final offers, with the seller holding all the cards. Many sellers are lowering their frankly unrealistic asking prices to reflect current market conditions. The penny is dropping that if you sell at a lower price, you can generally buy at a lower price, too,’ he said.
 
He also pointed out that if an interest rate cut comes in August that will inject additional confidence and activity into the market. How the jobs market holds up will also influence the trajectory of house prices.
 
‘While August is likely to be relatively quiet, September should see a seasonal uplift. By that point, many people will have decided to simply get on with their lives. At the same time, some wealthier households may sit on their hands to see if there are any about-turns or even slight adjustments to stamp duty in the Autumn Statement under the new Chancellor,’ he concluded.