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Market Update - July

Friday, 8th July 2016

Categories: Market Analysis Sales

Author: Tony Ryan

Naturally this market update focuses on the historic European referendum vote on 23rd June when the UK voted to leave the European Union. The vote was close 52% to 48% with various geographic areas and demographic age groups being polarised towards the “in or out” decision. Irrespective, in a democratic vote, the UK people have, overall, decided to leave the EU.

Everyone wants to know what this means for them, the UK economy, immigration, the housing market etc. and the reality is that, just a couple of weeks after the outcome of the vote, no-one can be completely clear on what the future holds.

One thing is for certain though. Any uncertainty leading up to the vote is now behind us and, whilst there will remain some uncertainty going forward, the whole country, irrespective of individual views, now needs to unite behind the decision and make it work. Negative talk could easily undermine the fundamentals of our relatively strong and improving economy and inadvertently deepen any downsides and reduce the height of any upsides.

The initial falls in the stock market upon news of the vote wiped around 8% of the value of shares in the FTSE 100 as many “automatic sell” triggers were hit but this had reduced subsequently as the market comes to terms with the decision.

The property market is always remarkably resilient and will adjust accordingly. The facts are that in the UK we have a surplus of demand over supply in both the owner occupier and rental sectors. The referendum vote will not change this position.

Interest rates are currently low. There will be some uncertainty as to where these head in the months ahead but we are as likely to see rate cuts as increases to the 0.5% base rate which has been in place since March 2009.

A fall in the value of sterling could bring some recessionary pressures but, by definition, we need six months of negative growth before we could fall into an official recession. Recessionary pressures could lead to the Bank of England actually cutting rates but this is likely to be in a slow and controlled fashion.

Any fall in the value of Sterling will make the buying of British goods, services and property by people from other countries cheaper. Central London property may actually see an increase in activity as a result and this lift in confidence may “ripple out” into the Home Counties and beyond over time.

Mortgage interest rates are commonly fixed for two to five years by buyers and so, whilst they may become marginally more expensive in the months ahead, they are unlikely to adversely impact on affordability and people will not feel the effect, if any, for some years by which time the way forward outside the EU will be much clearer.

Affordability was a growing issue before the referendum and will remain one subsequently. House prices and rental values have shown signs of having peaked but with the supply and demand balance where it is, we are unlikely to see any significant or dramatic changes in the months ahead.

Property investment has always been a medium to long term process. There have always been short term rises and falls but the general trend over time has been upwards.