London Home-Price Sentiment Hits Seven-Year Low on Brexit

Updated on
  • Gauge drops to -46 in June, weakest reading since 2009: RICS
  • Values in capital fall 1.4%, biggest drop since 2011: Acadata

The Impact of Brexit on U.K. Real Estate

A measure of London home-price changes fell to its weakest since the financial crisis as the U.K.’s vote to leave the European Union sent shock waves across the nation.

The index by the Royal Institution of Chartered Surveyors dropped to minus 46 in June from minus 35 the previous month, showing that more real-estate agents are recording lower prices in the capital than higher ones. The reading was the weakest since early 2009. All responses were received after the EU referendum on June 23.

A separate report from Acadata Ltd. and LSL Property Services Plc showed home values in the capital were already being hurt ahead of the vote, with prices decreasing 1.4 percent in May, the biggest monthly fall since June 2011.

RICS’s survey provides the first insight into the impact the decision to leave the EU is having on the housing market. It shows nationwide demand falling to its lowest level since the middle of 2008, while the number of properties put up for sale plunged to a record low. A gauge of sales expectations for the next three months was at its weakest in 28 years.

‘Critical Influence’

“It was always likely we were going to see a bit of a fallout from the EU referendum,” Simon Rubinsohn, RICS’s chief economist, said in an interview on Bloomberg Television with Guy Johnson and Caroline Hyde. “It’s also part of a trend that emerged at the start of the second quarter, particularly the London data.”

The trade body said its measure of national house-price changes declined to 16 in June from 19 in May. While that indicates overall prices were still increasing, it’s the lowest reading since January 2015.

RICS said a measure of near-term price expectations fell to minus 27, with all the 12 areas in England and Wales it tracks in negative territory. Its nationwide gauge of price expectations for the next year plunged to zero in June from 54. The survey was conducted between June 24 and last week.

“Economic uncertainty deters spending on long-lived assets such as houses,” said Kallum Pickering, an economist at Berenberg Bank in London. “But fundamental market imbalances will probably limit house-price declines: a lack of housing supply combined with existing demand-side policies like Help to Buy and Help to Buy London -- plus low interest rates.”

‘Clearly Unnerved’

In their report, Acadata and LSL said values in England and Wales rose 0.6 percent in June from May to an average 293,444 pounds ($387,000), the first gain in four months. On an annual basis, value inflation slowed to 6 percent from 6.1 percent.

The drop seen in London in May, the most recent month with regional data, took the average price of a home in the capital to 589,435 pounds, with 21 of its 33 boroughs registering a fall, LSL and Acadata said. Hackney, Wandsworth and Hounslow posted the biggest declines, with values decreasing by more than 4 percent in all three areas.

The Brexit vote has “clearly unnerved many buyers and sellers, and it is evident that some are reevaluating what they do and/or are attempting to renegotiate the price,” they said.

The reports come amid growing expectations that the Bank of England will cut official borrowing costs Thursday for the first time in more than seven years. Thirty one of 54 respondents in a Bloomberg News survey see the benchmark interest rate falling, with the majority of those forecasting a quarter-point reduction to 0.25 percent. The decision will be announced at noon in London.