There has been a spate of warnings about the impact of Brexit on the UK housing market, with London prices particularly vulnerable to a crash.
As negotiations between the UK and the EU get underway, an analysis by Societe General has warned that as many as 24,000 jobs already set to be relocated from the UK to mainland Europe, with as many as 85,000 leaving in the longer term.
The report warns that the fall in demand for London housing could potentially push the value of properties in the capital down by up to 50%.According to the report by Societe General, 17% of the workforce in London are EU nationals, compared to 7% on average across the rest of the UK. Following the EU referendum last year, between June and December net migration slowed by 24%.
This fall shows that the UK is already becoming less attractive for EU workers even before Brexit has occurred and before any change in the status of EU migrants in the UK.
The warnings from Societe General come as the London housing market already appears to be stagnating.
The housing market has benefited from historically low interest rates, but these can’t be cut further and there has been increasing speculation that the Bank of England may need to raise interest rates in the near future. The buy to let market is also coming under pressure as the Government phases out mortgage interest tax relief, hikes Stamp Duty and heaps more costs onto landlords by banning letting agents’ fees and capping tenants’ deposits.
Societe General points out in its report that, based on a methodology developed by the investment management firm GMO, the UK has been in a housing bubble since December 2014.
They define a housing bubble as a period in which prices increase by two standard deviations above their long term trend. According to this methodology, which was developed to identify property bubbles, there is an 80% chance of a housing market crashing after 30 to 36 months in a bubble.
By this measure, the UK has been experiencing a bubble for 33 months.
Meanwhile, Virgin Money has warned that London house prices are heading for a lengthy period of stagnation.
The bank has said that it is adopting a more cautious approach to lending for fear that mortgage borrowers could overstretch their finances with property prices being so high in the capital, only to find themselves in negative equity should prices fall.
Earlier this month, statistics published by the online property portal Zoopla showed that more than a third of residential properties for sale in London had their asking prices reduced.Asking prices were cut for 35% of houses for sale in London, up 5.3%, from 29.7% since February.
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