Brexit could cut London house prices by more than 30%, says bank
Brexit could cut London house prices by more than 30%, says bank
London property prices could fall by more than 30% in the wake of Britain’s vote to leave the EU and may halve in the most expensive parts of the city, according to analysts at the French bank Société Générale.Brexit may be the trigger to end London’s seven-year house-price boom as companies move employees out of the UK, forcing sales of high-end properties, the company’s real estate analyst Marc Mozzi said in a note to clients. Commercial property has been at the centre of post-Brexit fears as investors have tried to get their money out of property funds, but residential real estate could be hit harder, Société Générale said.“While in recent stress tests the major UK banks were assessed with declines of about 30% in commercial real estate prices, we fear that London residential could experience an even more severe downturn,” it said.Prices are already falling on properties previously valued at £1m or more, and may have further to go, particularly in the priciest parts of town. London’s highly paid investment bankers and hedge fund managers congregate in boroughs such as Hammersmith and Fulham as well as Kensington and Westminster.Société Générale added: “We see a classic housing bubble in London and Brexit as the trigger for the correction … Given the current ratio of prices to incomes in London, a price correction of even 40-50% in the most expensive London boroughs does not seem impossible.”London property prices have more than doubled since they began to recover from the financial crisis in 2009. Last month, the average London house price was £472,000 – 12 times average London earnings, compared with a long-term average of six times, Société Générale said.Brexit could push those stretched conditions to breaking point by forcing about 3,000 senior employees of financial firms to sell their London houses to relocate to Europe, Mozzi said. That would be more than a year of transactions in the market for homes costing £2m or more, leading to big potential declines in prices.Many non-UK banks and other financial companies base their European operations in Britain because EU membership allows them full access to the single market. That “passporting” arrangement may end when the UK leaves the EU, forcing companies to relocate businesses to Europe.Mozzi cited a report by the accountants PwC before the referendum that said Brexit could result in between 70,000 and 100,000 fewer people employed in the financial sector. The report, published in April, compared likely post-Brexit numbers in 2020 with a forecast for jobs if the UK stayed in the EU.Savills, the estate agent, was less gloomy. It said London sellers were already adjusting prices, interest rates are expected to stay low and the pound’s fall could attract overseas investors to buy property.“The vote in favour of Brexit suggests that political and economic uncertainty is likely to remain a feature of the market for some time to come. Of course it is not all negative news. We expect the newly formed UK government to be highly motivated to protect London’s position as a major global financial centre in any negotiations with the EU,” Savills said.Mozzi said the pound’s fall was unlikely to have a lasting positive effect on investors, who will hold off if they fear further falls in the value of sterling will reduce the value of purchases.