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The residential property sector is not a single entity but a collection of different markets that will likely see different things happening at different speeds in different sectors. UK prime has already seen a cooling of activity over the last 18 months/two years, where the old adage of investors not liking uncertainty has been the story of the day going back as far as four years. Consultation after consultation, and various tax changes, mean that the market has already seen the impact of uncertainty, rising hold costs (in the form of tax) and so too rising transactional costs have precipitated cooling in both the pricing and volume of transactions. Brexit merely joins that list as a new uncertainty.
All that being said, where the currency takes the significant hit that it has, and a proportion of buyers being non-UK (around 80% of prime buyers are UK-based, so it is important not to overstate) will lead to many buyers reassessing the fall in sterling and the softer pricing. There will be those, as with 2009, who take a deep breath and see now as a time for investment. This is unlikely to be a major impact but is worth bearing in mind.
Away from prime, the mainstream market lags behind in the same ways one would expect. Inflation and job concern, concern over interest rate rises (and a possible disconnect between base and mortgage rates), a long-term decline in the pound causing costs to rise and inflationary pressure—all this will have an impact on borrowing decisions. Quality of location and property will dictate much—less desirable properties in high supply areas may see a downturn in demand, with areas where there is low supply and high demand being less affected. A mirror of the prime market can be expected, therefore, but perhaps more slowly.
A cautionary word would be not to underestimate the impact of sentiment in the housing market—uncertainty is a key factor and that will impact on large financial commitments such as housing. Investment decisions by non-UK buyers will be discretionary and sentiment can play a large part in how those decisions are made and what those decisions will be.
Property law is probably an area that is least affected by supranational legislation. It always is and has been regulated jurisdiction by jurisdiction. My advice to non-UK buyers is, as a matter of course, not to think in terms of how property transactions progress in their home jurisdiction. There are examples of European law impacting on property, but they are peripheral rather than mainstream. In pure property law terms, at least in the mechanics of residential property transactions, there is likely to be limited legal impact. Changes to the conveyancing process to deal with gazumping have again been raised despite the short life of the last measure, the Home Information Pack—this is likely to receive less attention if there is a less active market.
Under human rights legislation everyone has the right to respect for their private and family life, their home and their correspondence. How these rights will apply going forward and whether the European Court will be the arbiter is unclear. What is certain is that there will be a great deal of legislation to review.
While there is an active real estate market in the UK, property is not an asset that can be traded at the press of a button. Whatever real estate investment decisions are taken these will not be instantaneous and will evolve in response to market conditions. Those who are not highly geared and those who are invested are unlikely to feel pressured to take quick decisions. Market uncertainty has affected the share prices of house builders, but investors and owners (particularly in prime property) are better placed than in 2008 when high gearing was an important factor driving sales at a low point in the property cycle. Mainstream property may be affected by consumer confidence about jobs and interest rates but most commentators seem confident that a lack of supply in many areas will support house prices.
Interviewed by Julian Sayarer.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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