Brexit: The Effect on Property Values

Following on from our article about Brexit last month it seems only right that we follow it up with a review of what the effects have been on the property market. We have concentrated on the effect on property values as this is what we do and can provide our readers with first-hand experience they might find useful. So what have we seen following the referendum decision:

1. Valuers – The immediate reaction of valuers was definitely ‘uncertainty’. Property valuation is an art, not a science and relies on judgement taking into comparable evidence in order to determine a view on value. Without transactions creating comparable evidence it is impossible for a valuer / anyone to know what effect this decision has had. As such it is likely that they might become naturally cautious in the short term until actual transactional evidence can prove that the market has stayed static / declined etc. This has been evident with the range of caveats inserted into valuation reports highlighting to lenders that given the referendum result, values reported might differ from a price actually realised following a sale. Where does that leave lenders from a reliance point of view?

2. Lenders – A likely cautious mood from property lenders especially for higher value houses, larger development schemes and complicated commercial properties. However, the UK residential domestic market is established and resilient so we would be surprised if lending criteria were effected for these assets. The strong consensus is and has been for some time that demand outweighs supply with a need to create new housing for the expanding population, which will not change regardless of the referendum result. We are likely to see the alternative / short term lenders to have an increasing presence in the lending market with mainstream lenders likely to withdraw even further from property lending especially in the secondary property market.

3. Purchasers – It was inevitable to see some existing property deals fall through following the result, with other purchasers choosing to press ahead with a transaction but taking the opportunity to chip the price, which vendors are likely to accept given the uncertainty regarding future of values following the result. The downward movement of the value of the pound makes the UK look more attractive to outward investors so they could choose this time to get a good return on an asset in a better location than they would have previously.
What will happen next?

An impossible question to answer. However, it is clear that people’s moods have already become more optimistic and we are unlikely to witness the decline in the market like we did in 2008/2009. In fact, some markets are still recovering from the recession and bank finance has been much tighter ever since, so the market is not as exposed to high LTV’s as previous.

Property values are generally driven by the strength of the occupational markets. If a building can let easily, there will be an investor out there wanting to buy it. So we need to resolve the uncertainty sooner rather than later in to protect the market in general.

There is a lot of commentary available regarding this subject, however, this mainly covers the prime commercial sectors and residential market. The secondary property market is where we spend most of our time and we are sure that a lot of people reading this article are the same. We would welcome any comments as there are no right or wrong answers at present and we are sure there will be a variety of opinions…