Trouble ahead: what Brexit could mean for the north London property market
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The lead up to the EU Referendum has dark clouds brewing over London, with experts predicting everything from economic shocks to the ‘Brexit bounce’. But are there even bigger storms coming?
Much like the weather, trying to predict the future is a tricky business, none more so when it comes to trying to foretell changes in the housing market.
With the EU referendum drawing ever closer one of the major questions looming over Brexit is the effect it could have on north London property prices.
If you own, or would like to own, property in north London should you be concerned about what will happen to the value of your home, excited about a potential dip in prices, or blasé that things will right themselves in the long term?
With the advice of many in the property industry directly contradicting reputable economic opinion, there is plenty of scope for confusion.
Stand alone success
Self-confessed “fervent” Vote Leave enthusiast Trevor Abrahmsohn, director of Glentree Estates, predicts a glorious future should Britain vote to exit the EU.
“After the initial turmoil of leaving, the benefits will be there for all to see,” he says.
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Goldman Sachs and HSBC predict that sterling could plunge by as much as 20 per cent following a Brexit, but Abrahmsohn is adamant that this would have an ultimately positive effect.
If the pound drops against the dollar but remains comparable to the euro, Abrahmsohn predicts that the effective discount on property prices could encourage overseas buyers who are currently put off by high taxes.
New research conducted by real estate investment management firm JLL also suggests that a correction in property prices could contribute to a ‘Brexit bounce’.
However Guy Grainger, head of EMEA for JLL has warned that this initial boost would precipitate at least two years of serious uncertainty.
And that’s bad news for Hampstead asset rich but cash poor home owners relying on the value of their homes to see them through retirement or help their children or grandchildren financially.
George Osborne has warned that Brexit could cause house prices to drop by as much as 18 per cent.
The Chancellor has dire warnings too for those who don’t yet own their property outright anticipating interest rate rises and a consequent rise in the cost of mortgages.
“If we quit the EU the country would be poorer, there would be volatility in the financial markets that would push up mortgage costs irrespective of what the Bank of England might do with official interest rates,” the Chancellor told the Sunday Times.
Brexiteer Abrahmsohn has a few choice words to offer on this point.
“Nonsense. Hogwash. Tosh. Poppycock. Interest rates are not going to go up. The Chancellor is propagating scaremongering of the worst type.”
Dip in demand
Whilst accusations of scare tactics fly on either side of the debate, some north London property experts are genuinely concerned that a UK exit could lead to a serious dip in demand.
“It could be catastrophic for the London market,” warns James Morton, director of Benham & Reeves.
He predicts that should the UK leave, global banks will relocate their headquarters, prompting an exodus of financial service workers who currently work, live and educate their children in London.
“Staying in means we know what we’re dealing with. Leaving would mean a potential economic shock.”
If the banks leave, homeowners may be forced to sell up and relocate to other financial centres such as New York or Dubai, potentially flooding the market with supply but no demand, Morton warns.
Areas such as West Hampstead have a high concentration of residents employed in the financial services, leaving it particularly vulnerable to this in the event of Brexit. West Hampstead estate agent Oakhill Residential calculates that of the 9,800 homeowners in NW6, 9.7 per cent are employed in the sector and could be prompted to leave London.
“Where are they going to go?” asks Mark Pollack, founding partner at Aston Chase
“I’ve had high net worth clients who have re-located to Switzerland [for tax reasons] only to come back because it’s not as interesting. They have more money but it’s boring there! I don’t think there’s an alternative city to London.”
A swing voter, Pollack stresses that whilst there are potential negatives and positives with both outcomes, London’s cultural caché will remain the same whatever the eventual vote.
“Ultimately, whatever the outcome, life goes on. Fundamentally what makes London great won’t change overnight. I feel confident that London will be okay.
“If we stay in we might see a flurry of activity but I don’t see prices surging.”
Robert Bixby, regional director at Anscombe & Ringland concurs that London’s popularity will trump whatever voters decide on June 23.
“The reality is that north west London will remain hugely popular both nationally and internationally.
“Whether we remain in Europe or leave, St. John’s Wood, Hampstead, Highgate and further out to Finchley, Totteridge and Barnet, will retain their interest and attraction from an international buying market.”
North London’s got the stamp duty blues
Camilla Black, managing partner and founder of Black Brick Property Solutions has noticed her overseas buyers falling into two camps: the concerned and the carefree.
“For some buyers it’s put them off, for others they couldn’t care less,” she says.
Having recently closed a deal with an overseas buyer for £55 million, Black is dismissive of claims that Brexit is responsible for the property market’s woes.
“There’s been too much emphasis on Brexit for being at fault for the slow market,” she says. “It’s just a nice excuse for people.”
Instead she names the changes to stamp duty for buy-to-let and capital gains tax for putting the brakes on the market.
Leave, remain, or on the fence, property experts agree that Brexit is yet another tremor in the seismic shifts the London property market is currently experiencing.
Higher taxes have discouraged investors, hitting the middle to higher price brackets of the London property market hardest over the past two years by deterring the overseas buyers that have pumped up property prices for so long.
Whilst London remains a valuable asset in any global property portfolio the market has undeniably slowed, and uncertainty has become the watchword and curse of the London property market.
Some believe a vote to remain will mean a return to the status quo, putting an end to market uncertainty, while a leave vote would have the opposite effect, because negotiating a Brexit could take years and the terms of any deal are unpredictable.
A report from Hometrack warns that the London property market remains the most vulnerable to any referendum result shocks and predicts that, given past form, London could see a drop in transactions of up to 10 per cent following a Brexit.
An uncertain future
The analysis suggests that more uncertainty may be yet to come, regardless of the result.
Richard Donnell, insight director at Hometrack says: “After a period of strong house price inflation over the last five years, the London market faces greater headwinds irrespective of the referendum vote. Turnover fell seven per cent last year on the back of affordability constraints and weaker overseas demand.” The future is looking far from sunny, either.
“Tax changes for investors will reduce demand and we expect price growth to slow in the near future even if sterling were to weaken and improve the relative value of central London property,” he says.
Lest any first time buyers think that this would help them get a foot on the property ladder, Paul Cheshire, professor emeritus of economic geography at the London School of Economics, says leaving would cause a shock to the economy he predicts could last a decade.
Writing on The Conversation, he says that while house prices may fall, this would mean that house builders would build less, decreasing supply. Combined with the hit to the economy, this means first time buyers would continue to be locked out of the housing ladder.
If you already own property in north London, you can sleep easier in the knowledge that it should weather the squall and remain a valuable long term asset whichever way the wind blows (witness the stonking recovery in Hampstead after the 2008 financial crash).
“If you’re not under pressure to move my advice is to sit tight,” says Pollack.
“If you have property in London you have AAA stock.”
Darker storms than the referendum are brewing on the horizon of the London property market, but it might just be safer to stay in port than head out to sea alone.