Before you get carried away reading headlines about a house price crash, I have some important information to share. This is not a Hollywood-style, flames and thunderous noise collapse, this is a gradual but overdue correction that will result in lower house prices for many, but not necessarily more affordable house prices. Let me explain.
The U.K.'s Royal Institution of Chartered Surveyors asks its members every month how they feel. Some are more optimistic about the market; some are less so. They gather these views into a barometer of sentiment that they report as a "balance of surveyors" who say they have more homes for sale, fewer buyers registering and that prices in three months' time will be lower than today. For a group of trained, qualified professionals famous for measuring things carefully and accurately it may seem rather amateurish, but this monthly "wet-finger-in-the-air" survey has been, just like seaweed, surprisingly accurate. Many in the property game study it and react to it.
This month's offering shows that on balance more surveyors are pessimistic about prices, they are depressed by the EU debate and the uncertainty that if causes and in their offices up and down the U.K. they are seeing sellers holding off and buyers sitting on their hands. The result of this, when added to the government's recent changes to things like Stamp Duty, is that those having to sell are having to consider lower offers. In central London these offers are perhaps 15 percent lower than they were in 2015. The rest of the country has yet to feel this change, but what starts in the capital usually ripples out. It may be nine months before the effect is noticed in Shropshire or Norfolk but the surveyors can sense it coming.
It's not just the EU referendum that is to blame. House prices are based not on direct supply and demand but on the cost and availability of credit. If mortgages for the 60 percent of buyers who need one are harder to qualify for, or more expensive, then prices rise slow. If we were to come out of the EU the "Remain" camp are claiming house prices would fall because interest rates would rise. Ironically, the Brexiteers claim that if we stay then the economy would wobble and this would also lead to higher borrowing costs.
The uncertainty is impacting on the number of deals being done. Despite the spike in sales in March, transactions in April were down year-on-year. Lenders are now offering 30-year mortgages, a mortgage until you're 85. A mortgage with your grandparents! These are all signs that it's getting tougher to borrow, with the result that prices are coming under pressure.
As I have said, those who think that lower prices are a good thing will be disappointed to hear that this doesn't mean that homes are any more affordable. If prices halved but the cost doubled then this is no help to anyone who needs to borrow to buy.
All the government Help to Buy in the world won't change the cost of borrowing even if it artificially reduces the amount people need to save up.
Like the British weather, some places are in sunshine and it feels like flaming June. There are parts of the U.K., however, where it is dull and a few where it feels there is a Biblical event occurring. House price surveys are just windsocks—they show us what is happening now, but the forecast is unsettled.
Henry Pryor is a London-based buying agent and market commentator. He has made over 500 appearances on TV and radio, discussing the U.K.'s housing market.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
To read how Newsweek uses AI as a newsroom tool, Click here.
