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April 3, 2017

What does Article 50 mean for London house prices?

On 29th March, a monumental day in the UK occurred. After the vote on 24th June last year, Prime Minister Theresa May officially triggered Article 50 and began the process of removing the UK from the EU.

 

Article 50 of the Treaty of Lisbon allows any EU member to quit; from the moment they “resign” they’re given two years to negotiate an exit deal. Once the exit deal is triggered, you’re unable to stop the motion, unless there is unanimous consent from all member states.

 

Britain should leave the EU before April 2019 after the two year period of negotiations; a process which will likely be extremely complicated.

 

As with any political decision, it’s hard to forecast what will happen and how the market will react. The ramifications of starting the departure from the EU are still incredibly foggy, but the analysis of Google searches in the last week suggests that many people are most concerned about property, with searches for how it’ll effect “house prices” and “mortgages” outranking searches for “the pound” and “interest rates”.

What has the effect on the property market been like so far?

 

The result appeared to slow the market slightly; there was a decrease in people moving homes in which the referendum result undoubtedly contributed to. The uncertainty of the vote brought about a reduction in transactions; the second half of 2016 saw a 9% decrease from the same period in 2015.

 

The vote had an impact on confidence in the housing market over anything else; analysts have said this is what reduced the house prices within the market, and mainly within London, and has led to house price growth being at its lowest levels since 2013.

 

However, in February growth was recorded at 5.6 percent, according to Hometrack, meaning that, whilst it’s not a double figured growth, it’s still continuing to rise.

 

Now Article 50 has been triggered, what will happen?

 

Immediately it’s unlikely to effect the housing market; as the market was prepared due to the well documented coverage over the last 10 months.

 

It’ll fall down to how the negotiations play out, and what effect this has on consumer sentiment.

 

This depends on how the EU responds to negotiations; if they’re open to discussions then it’s likely that the market will respond with mild caution, however if they’re driving a hard deal there is a possibility the market could face hardship.

 

Experts have suggested that the market will flat line for a couple of years and that buyers will be most cautious in London due to the bigger financial commitment it requires to live there.

 

What is the main deterrent?

 

It’s suggested that inflation will be a key factor to a declining housing market. The decline in sterling has already begun to increase inflation. Consumers could be deterred by the rising inflations, they may choose to renovate and expand rather than buying a larger home.

 

Does it have an effect on mortgages?

 

At present, the mortgage market remains steady.

 

With competitive rates continuing and all-time-low rates, now is a better time than any to get a mortgages. Banks are looking to lend after the base rate was cut to 0.25 per cent last year meaning lenders could give attractive rates to those looking to buy.

 

To conclude – two years of intense Brexit negotiating will add to the air of uncertainty around the property market. That said, the record cheap lending options that buyers have also, the likely flat pricing to be witnessed over the coming months, shouldn’t then deter motivated buyers to committing to a purchase where they believe they have negotiated a fair price and have secured a competitive lending rate, for said period.

 

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