Anxiety over Brexit continues to subdue spending
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So, the Brexit uncertainty continues. The only thing that is certain about Brexit right now is that the continued uncertainty around what it will bring is making many of us think twice about spending large amounts of money on anything that is not essential. That means that holiday/travel companies are feeling the pinch. But they are not the only companies issuing dire profit warnings. Luxury car brands, including Jaguar Land Rover and more modest cars makers such as Mini are cutting production as buyers put off buying a new vehicle.
Retailers on the high street and in retail parks are also under pressure, with many reporting dismal Black Friday results and lacklustre sales in the run-up to Christmas.
Brexit and home improvements
One area that has shown an upswing due to Brexit is home improvements. With people not having enough confidence in the future to move up the property ladder, many are staying put but investing in their current property instead.
Often, secured loans are being used to fund extra living space, with extensions and loft conversions proving more popular than ever. Others are choosing to add value (and a touch of luxury) to their home by taking out a loan so that they can replace their kitchen or bathroom.
Brexit and homebuyers
Whether you are a buyer, a builder or a self-builder, it is understandable to want to see what the ramifications of Brexit will be before committing to anything property related, as there is so much uncertainty right now around Brexit.
The Bank of England has many people concerned by a warning that if the UK crashes out of the EU without a deal in place, we could see up to 30% wiped off house prices in the worse case scenario1. Although this was meant to illustrate only what might happen without a Brexit deal, it has done nothing to lift an already subdued property market.
Although Brexit uncertainty is not exactly encouraging buyers to invest in a home right now, a recent poll carried out by Reuters showed that house prices in London are expected to rise by 1.5% in 2020. This is significant, as London is considered to be the only region that has actually seen prices dip already, albeit by a small amount.
Savills, the estate agents, note that although Brexit uncertainty has had an impact on prices and demand, the stricter mortgage lending rules implemented since the 2008 financial crisis should prevent the property market from a crash. These rules are focussed on affordability so that people just cannot simply take out a mortgage without the means to make the repayments.
For those that can afford to buy a home but are hesitant, the slight dip in prices due to buyer angst may give some an opportunity to purchase, before prices probably start rising in the future.
Interestingly, higher-priced properties in central London have been hardest hit so far, as these homes are often thought of as more of as a serious investment rather than just a place to live. As such, the high net worth buyers of these homes will often use cash rather than a mortgage, so are far less impacted by mortgage regulation and more by market sentiment, with Brexit particularly concerning well-off foreign buyers.
In general, many are simply deciding to stay put for now whilst they see what Brexit brings, which has led to relatively few properties being placed on the market by existing homeowners.
The Brexit effect on builders and self builds
As a deliverer of loans, At Loan.co.uk we have noticed that many people who were interested in self builds that would have created the home of their dreams have put their plans on hold for the moment, with some mentioning uncertainty over Brexit as the main cause.
What is more, despite the UK government’s initiatives to tackle the housing crisis in the Autumn 2018 Budget, some major building companies are reluctant to commit to new builds because of the uncertainty around Brexit. This reluctance to build new homes means that the housing shortage is unlikely to become solved any time soon.
It is thought that there are a number of factors behind the building firms slowing down operations recently, but one of the most important ones is that a decrease in consumer confidence has led to many potential buyers avoiding major transactions, which again, is related to uncertainty around Brexit.
Although the housing market is a little on the slow in general, house prices outside of the capital have shown a modest increase. In contrast, the London housing market has a shown prices decrease slightly, especially at the top end of the market.
London bearing the brunt of Brexit concerns
The outlook is so poor right now that Crest Nicholson Holdings PLC has taken the decision to close their London division over the lack of interest in their new builds win the area.
According to Molior London (leaders in residential research for the development industry) the amount of completed homes awaiting a buyer has increased by around 50% this year in the London area2. In the usually much-sought-after central London area, the sale of new homes looks set to fall by around a quarter throughout 2018 as a whole2.
Rather than quitting London completely, some house builders have decided to diversify. For example, Countryside Properties PLC has slowly been moving its focus from London and the Southeast of England, but still maintains a presence, whilst Berkeley Group Holdings has just started selling properties for the first time in Birmingham, with more sites in the pipeline within the area.
Galliard Homes is also building in Birmingham, and the Chairman has stated that the decision was prompted by the price-to-earnings ratio being almost 15X in London, whereas it is less than 8X in Birmingham2.
There are still reasons to be optimistic for both buyers and builders
There are at least some news relating to the housing market that may give a little respite from the less positive news stories that have been circulating recently, including:
- House price growth is still slowly rising overall. Prices showed a modest increase of 1.9% in November, up from a five-year low of just 1.6% in October2
- Borrowing costs are low. In fact, interest rates are predicted to rise at both a modest pace and only by a small margin for the next few years2
- Unemployment levels are at record lows. In fact, they are at the lowest in around 40 years3
These last three points combined mean that if the UK could gain certainty around Brexit, employment may rise further, creating some hope that the housing market may improve in throughout 2019, which could also relieve some pressure on the retail industry.
1The Week: https://www.theweek.co.uk/london-house-prices