BrexitNov 1 2017

Nationwide warns of big Brexit hit to housing demand

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Nationwide warns of big Brexit hit to housing demand

Nationwide has said there could be a “significant slowing” in housing demand as migration falls following the UK’s departure from the European Union.

The building society said the biggest impact of a drop in migration would be felt in London, which is home to a large proportion of the 1.6m EU-born citizens currently renting accommodation in the UK.

Data from the Office for National Statistics show that between 2011 and 2015 there was a 2 per cent increase in the number of households in England, driven largely by migration from the EU.

Recent migrants are more likely to rent, and 60 per cent of London’s private renting population was born outside of the UK – 26 per cent in the EU and 34 per cent outside of the EU.

Robert Gardner, the building society’s chief economist, said: “With the ongoing uncertainty around Brexit and the rights of EU citizens once the UK leaves the EU, we may see a slowing in housing demand - and particularly rental demand - in the years ahead, if it results in slower migrant flows. 

“Recent data points to a significant slowing, though the data can be volatile.”

Nationwide’s latest house price index reveals prices edged up in October as the property market remained resilient in the face of Brexit uncertainty and an expected rise in interest rates.

Average UK house prices increased by 0.2 per cent during the month to reach £211,085, as the UK experienced better-than-expected economic growth of 0.4 per cent during the third quarter of the year.

Year-on-year growth climbed to 2.5 per cent, up from 2.3 per cent in September.

Nationwide said low mortgage rates and healthy rates of employment growth had boosted demand, while the lack of properties on the market continued to drive up prices.

This was offset by a squeeze on household incomes as inflation continued to rise, weighing on confidence.

Mortgage lenders have recently upped the cost of borrowing ahead of an expected rise in the Bank of England base rate tomorrow (2 November), raising fears of a further slowdown in the housing market.

But Mr Gardner said the impact of a rise in interest rates was likely to be “modest”.

He said: “The proportion of borrowers directly impacted by a rate rise will be smaller than in the past, in part because the vast majority of new mortgages in recent years were extended on fixed interest rates. 

“The share of outstanding mortgages on variable rates (and which are therefore likely to see an increase in payments if the Bank Rate is increased) has fallen to a record low of around 40 per cent, down from a peak of around 70 per cent in 2001.
 
“Moreover, a 0.25 per cent increase in rates is likely to have a modest impact on most borrowers who are on variable rates.”

Jeremy Leaf, north London estate agent and a former Royal Institution of Chartered Surveyors residential chairman, said: “These figures are particularly interesting as we weren’t expecting to see much in the way of price growth, bearing in mind all the recent signals that interest rates may rise imminently. 

“However, we have found that most of the people we talk to have already taken into account the possibility of a rise in interest rates as it has been talked about for so long.

“We have certainly seen this pattern on the high street where shortage of stock and slow transaction rates are having an impact but certainly there is still sufficient confidence for buyers and sellers to move if the circumstances are right.”

simon.allin@ft.com