A Property Slowdown: Could it be Good News?

on Oct 13, 2016

The referendum result was not the one most property investors were hoping for, and a couple of months on it has become clear that, at least in the short-term, the vote has had a significant cooling effect on the market. Buyer activity has slowed, as has growth in prices. A lot of investors have understandably taken this as bad news, but a slowing of the property market’s pace could also be taken, at least in some ways, as just the opposite of a problem.

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A reduction in demand for properties that hit the market right now and a slowing of price growth has helped to create more of a buyers’ market than what was in place before the referendum. For one thing, buyers have got a bit of a reprieve from the way properties have been becoming rapidly more expensive in recent years. This is true essentially nationwide, but is perhaps most pertinent in the prime London market where prices are already very high and have continued to get higher at a great pace for some time. Price growth for residential properties in Greater London have, according to the Halifax House Price Index, fallen from 9.2% annually in May to just 8.6% in June.

As the effects of the vote continue to set in, many analysts predict that properties will continue to grow in value but will do so more slowly, putting a bit less pressure on would-be buyers. Some even believe there could be a decline in prices, though there are few willing to place any bets on the extent of such a decline. Indeed, many buyers and sellers alike have begun acting as if a drop in prices is going to hit at any moment.

There is expected to be relatively little impact on the buy-to-let market from the Brexit vote. This is partly because demand for accommodation is set to continue, and partly because the market has already taken some knocks recently. Tax changes, in particular, have squeezed investors but have at least reduced the scope for the fallout from Brexit to do any further damage to the market. These changes include reforms to the way buy-to-let income is taxed, and a 3% surcharge in stamp duty which, according to one survey, 70% of landlords said would make them more reluctant to buy additional properties.

Commercial property seems to have been hit harder than the residential sector. This is the sector that has borne the brunt of investors fleeing in search of more stable investments. In particular, it was withdrawal from commercial property that led to the high-profile lock-ins as property funds found their cash buffers exhausted and investors still clamouring for the chance to withdraw.

Some investors seem to believe that a slowdown in the market could indeed be considered good news. Rather than fretting over the negatives, they are looking for ways to find opportunity in the current conditions of the market. With demand and, consequently, competition reduced, landlords with cash to spare have more opportunity to secure their ideal properties for additional investments and to get them at more attractive prices. With many experts urging investors not to panic and stating that any price dip will be a temporary one, it is not surprising some landlords see not so much a reason to flee as an opportunity to pick up bargains.


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