The vote for BREXIT came as a great shock to many – especially in London and the resulting political upheaval has led to acute uncertainty and concern.
Homeowners have many questions as they try to assess the impact of the shock wave travelling through the market. We outline below our brief thoughts:
The Prime Central London market has been softening since mid-2014 in the face of several factors: actions against non-domiciles, increased stamp duty, increased annual taxes on properties held in corporate structures, removal of mechanisms to borrow onshore, secure offshore, removal of some inheritance tax shelters etc. The list goes on and supports arguably a concerted government legislative effort gradually to soften prices or at the very least take the steam out of the market.
The market has seen a flight to quality, with low transaction volumes and the illusion that prices are being maintained. With the exception of best-in-class properties, achieved prices have already fallen substantially and due to recent events are likely to fall further.
The fall may be countered by a weaker pound attracting inward investment but it is unlikely that there will be a surge of investment at this stage when prices remain at or near to their current levels. In addition the Bank of England is widely anticipated to lower the base rate (although banks may well increase their rates to increase margins and protect profitability) and possibly recommence quantitative easing. Currently few sellers are forced sellers and so we expect the shortage of supply to continue.
On balance we believe that transaction numbers will continue to be low, certainly for the immediate period. Sales prices achieved in these conditions of low transaction levels and potentially increasing finance costs will begin gradually, but not suddenly, to fall. The rate of price falls may accelerate, potentially rapidly, if well-paying London businesses become less profitable, reduce pay or choose to downsize or relocate.
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