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Mortgage market braced for Brexit fallout

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Britain’s vote to leave the EU could freeze the housing market in the short term and hit interest rates and house prices in the long term, say industry experts.

Last week the UK voted ‘Out’ and Prime Minister David Cameron announced he would resign over the issue.

Some believe the immediate outcome of the vote will stifle housing transactions.

Hometrack insight director Richard Donnell says: “The immediate impact is likely to be a fall in housing turnover and a rapid deceleration in house price growth as buyers adopt a wait-and-see approach to the short-term impact on financial markets and the economy at large.

“The decision to leave the EU will be most keenly felt in the London housing market, which is fully valued and already facing headwinds.

“History shows that external shocks can reduce sales volumes by as much as 20 per cent, with sales volumes already down over the past year.”

Dragonfly Property Finance managing director Mark Posniak says: “Caution, reduced transaction levels and downward pressure on prices in the months ahead are almost certain, but we should not write off the property market.

“Despite the magnitude of the result, the structural supply issue underpinning the UK’s property market may well prevent prices falling materially.

“Overseas demand may also increase on the back of the decimated pound. For many overseas investors, buying British property just got a lot cheaper.”

A Council of Mortgage Lenders spokesman says: “In the short term, people’s attention will be on interest rates and what impact this will have on mortgage costs. While markets are bound to react to the news, the question will be how long it takes for them to settle. We know the authorities will be mindful of this.

“In the medium term, there will also be interest in the extent to which housing transactions are affected by economic uncertainty, and whether this will impact on house prices. The more quickly markets resettle, the lower the impact on the housing market is likely to be. However, any prolonged disturbance would inevitably impact the housing market.

“Lenders remain open for business as usual. Mortgage pricing is unlikely to react instantly, although pricing may be affected in the foreseeable future because of the effect on lenders’ cost of funds arising from the perception of economic uncertainty. How long this lasts will depend on how quickly markets resettle.”

Mortgages for Business managing director David Whittaker says the Bank of England could be forced to raise interest rates later in the year to woo investors.

He says: “They may have to raise interest rates to make us an attractive investment but also to lure back some of the capital.”

Others say it is too early to predict the immediate consequences of the referendum.

Association of Mortgage Inter­mediaries chief executive Robert Sinclair says: “The sun will come up tomorrow, people will have the same job they had today, and nothing changes. Nothing has changed and it won’t for a long time because we’ve got at least a two-year process to go through to exit.”

Sinclair thinks the UK’s financial firms are sufficiently capitalised to weather any Brexit fallout.

He adds: “I also don’t imagine that the mortgage market will change radically in terms of fund availability because banks are still going to want to lend and are being encouraged to lend. I don’t anticipate much change in the short term.”

However, Sinclair says the market’s medium- to long-term prospects are very unclear because int­er­est rates could rise or fall.

“There are two scenarios the banks are running through,” he says. “One is negative interest rates; the other is base rate increases. The decision… will be driven by how everything reacts over the next two to three weeks. There’s initial shock, then things will settle down, then we’ll begin to see the outcome of this.”

Building Societies Association chairman Dick Jenkins says: “For the foreseeable future, nothing changes in the building society sector. Mortgages are available and retail savings are safe, exactly as they were before the referendum.

“The greatest concern for the UK economy, and something that affects financial market sentiment and ultimately interest rates, is uncertainty. The primary job for the Government and politicians generally is to unite to ensure they do everything possible to counter this and set the tone and framework for the UK economy to thrive.”

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