No crash but London market stalls ‘thanks to Brexit, economy, taxes’

Ten out of 14 economists surveyed by Bloomberg News say Brexit and economic uncertainty are likely to stall London’s housing market for some years to come – while half of them also blame increased taxation on landlords.

One of the economics – Samuel Tombs from Pantheon Macroeconomics – says the Leave vote a turning point for the capital’s housing market, but that it was not catastrophic.

“It’s not the disaster that some were predicting and we expect London home values to remain stable but not fall over the next year. The market will remain this way until we get clarity on what sort of Brexit the UK will have; that won’t be anytime soon as it’s in the EU’s interest to drag out negotiations. It’s clear that Brexit is adversely affecting the UK economy whereas Europe’s is steaming ahead. It will take until March 2019 to get that clarity and until then the housing market will continue to struggle, with the London market bearing the brunt of it” he says.

Azad Zangana, senior economist at Schroders Plc, says the market has been preoccupied with stamp duty and other fiscal measures against landlords, but that Brexit is now taking centre stage.

He says: “We are expecting a soft patch in prices for the next couple of years. Rental yields for London properties are so poor that it’s hard to see how landlords can make a profit after paying extra stamp duty and taking a second hit with the reduction in tax relief for rental income. It’s now more profitable for investors to buy properties in other parts of the country or abroad. That said, not enough homes are being built to keep up with demand from first time buyers for prices to fall.”

Kallum Pickering, senior economist at Berenberg in London, says Brexit has created risks that were not appropriately reflected in the “exceptionally low property yields at the time of the vote,” triggering a possible correction in values.

“The latest data indicate that the London housing market could be correcting as other global cities in Europe – where the economic recovery is two or three years behind the UK – are creating better investment opportunities. But this is not a Lehman moment for the London property market, as long as the UK doesn’t have a hard Brexit and the economy remains in shape, we don’t anticipate huge price falls” he says.

And Philip Shaw, chief economist at Investec Securities in London, says rising inflation and the new minority government is making investors wary.

“Households’ discretionary spending has been impacted by higher inflation and if they don’t have to move they won’t. We don’t yet know the extent of financial migration out of the City to other parts of the EU, but it is another factor that will dampen demand for London housing” he says, adding that he expects property values in London to remain “broadly flat” until greater clarity on the outcome of Brexit negotiations is given.