Home Buyers Abandon Purchases as Brexit Vote Fuels Slump Concern

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Steve Victor, a 33-year-old IT contractor from London, says he’s pulling out of the purchase of a new four-bedroom home in the town of Bedford after Britain voted to leave the European Union.

“I will lose my solicitor’s fees but after the shock outcome of the vote this morning, I have decided to pull out,” he said on Friday. “I am concerned about the country sliding into recession, interest rates rising and I think home prices will fall. I will get a better deal in the future when they do.” The home, about an hour by train from London, would have cost him 400,000 pounds ($550,000)

Capital Economics Ltd. cut its forecast for U.K. home-sale volumes by 10 percent following the vote as a Brexit-triggered economic slowdown will weigh on job creation and income growth, according to a report Friday. Some buyers will now try to renegotiate sale prices, said Mark Harris, chief executive at mortgage broker SPF.

“We had a foreign client pull out of buying a 25 million-pound home today in Kensington as a result of the vote.” said Charlie Ellingworth, a co-founder at Property Vision Ltd., a broker that advises prime-home buyers. “We may see less international buyers in the market as a result of today’s decision.”

Future Doubt

Some are taking a wait-and-see approach. Bianca Sandrina, a 28-year-old Romanian who works on the trading floor of a major U.S. investment bank in London, said the vote means she will no longer make an offer for an apartment in a project in the west of the city being developed by Redrow Plc. “The housing market will go down and at the moment I don’t even know if I’ll be working in London in the next two years,” she said.

Nicola Harrison, the 34-year-old content editor of Retail Week magazine, is putting house hunting on hold as she expects demand to drop and prices to fall. Patrick Duce, a 31-year-old NGO worker who exchanged contracts to buy a north London home on June 22, said with hindsight he would have delayed the purchase.

Short-sellers betting against U.K. homebuilders made huge paper gains on Friday, with Redrow falling as much as 76.6 percent, the most in more than 20 years. The industry fell the most since before the financial crisis following the nation’s vote to leave the EU on Thursday. Bets on a decline in Redrow shares rose to their highest level since July 2011 before the referendum, with short interest at 3.9 percent of shares outstanding on Wednesday, according to Markit data.

Short Positions

Berkeley Group Holdings Plc, London’s biggest homebuilder, fell as much as 39 percent on Friday, the biggest drop since 2004. Hedge funds Odey Asset Management and Marshall Wace held the two biggest short positions against the homebuilder, according to data compiled by the U.K.’s Financial Conduct Authority. Spokesmen for Odey and Marshall Wace declined to comment. Redrow declined to comment, while Berkeley did not immediately reply to an e-mail seeking comment.

The U.K. Treasury warned before the referendum that a vote to leave would mean home values would be as much as 18 percent lower than if the country stayed in the political bloc.

“It was going to be a bad day because people’s expectations for the economy are weaker and there is a lot of political uncertainty around,” Charlie Campbell, an analyst at Liberum said by phone. “Homes are discretionary purchases and sentiment has moved from people being pretty bullish on the sector so I suspect there is a bit of over reaction.”

The London market is also facing a “major shock” because tax increases will reduce landlords’ returns to almost zero, causing them to sell homes and creating an oversupply, Deutsche Bank AG analysts Oliver Reiff and Markus Scheufler wrote in a note last week.

Bulgarian-born London lawyer Valeri Bozhikov was planning to sign a contract to buy a house in the capital before the referendum result.

“I’m not signing after today," he said by e-mail. “As a foreigner, and a person whose status in the UK is currently unstable, I don’t see a reason to invest in a home.”