Brexit influenced the stock market and the value of the British Pound, but what were its consequences on the real estate market?
Brexit, the day when Great Britain decided to leave the European Union, is one of the most important events in the world’s history. The event strongly influenced the economy, stock and currency market, but also had strong influence on the real estate market. What happened exactly?
1. Prices Fell By One Percent and Will drop From 10-18% in the Next Years
The fist occurrence in the real estate market was the drop in prices. Although not too significant, the house prices fell one percent in only 30 days after UK citizens voted to leave the European Union on the June referendum. However, experts say that this fall occurs occasionally, and in order to fully see the effects of Brexit on the prices of the real estate, we need to wait for quarterly review. According to many sources, it is too early to judge whether Brexit will influence higher drop in prices.
Note that The Treasury predicted that prices will drop from 10-18% in the next two years, but the first months indicate smaller price drops.
2. Luxury Houses Prices Continue To Drop
One interesting trend is the continues drop in prices of the luxurious houses (about 0.5% bigger than the regular houses) after Brexit. The high-end houses in London especially felt this with average price drop of 1.5% last month. Some of the neighborhoods suffered even bigger price drops. Knightsbridge suffered 7.3% price drop just in July. It is most likely this drop to continue in the next months as this is the fastest drop in rates since the global economic crisis in 2008-2009.
3. Bank of England Cut the Interest Rate for 0.25%
Bank of England needed to react after Brexit, and few days ago it gave huge boost to the real estate market, the mortgage market more specifically. It cut the country’s interest rates by 0.25% (from 0.50% to 0.25%). Again, this is the record lowest mortgage interest rates after the global economic crisis in 2009. What this means is that the customers will pay lower instalments for repayment of the mortgage rate holders and can achieve somewhere around £20 per month in average. This is good for the customers, but this is only if the cut is passed to the customers, which is still not certain. This is because some lenders have levels of rates and they won’t reduce the rates below those levels. Others use rates that will not be the same of that of the Bank of England. Lots of the homeowners will also not feel this change, because the mortgage rates on half of the home loans are fixed.
Obviously the prices of the homes in the real estate market after Brexit will continue to fall. Although the government cut the interest rates, which is part of the £170bn package of post-Brexit monetary stimulus, many months and years need to pass in order the real estate market to stabilize. Post-Brexit period is bad for savers and owners of properties as the prices and interest rates continue to fall!