Post-referendum property: How has home lending been affected so far?

 
Post-referendum property: How has home lending been affected so far? [Photo: Andrew Linscott via iStock]

The June referendum represents one of the most dramatic upheavals in recent UK political history. The Brexit vote immediately led to speculation about its potential economic impact. Within the property sector, it was feared buyers would be hesitant to move forward with purchases, instead adopting a wait and see approach that could negatively affect sales figures and property prices.

Hard economic data is still somewhat limited, with the referendum having taken place mere months ago. However, the Council of Mortgage Lenders (CML) has released figures and commentary that paint an early picture of how the property market has been affected by Brexit to date.

While the picture remains somewhat unclear, these early indicators are nonetheless useful in gaining a greater understanding of how the market currently stands - and where it may be going.

July - the initial Brexit impact

To recap on early indicators of post-vote performance - data from the CML showed that home lending declined in July, the first month following the leave vote. Month on month, borrowing for house purchases dropped 13 per cent, while falling 12 per cent year on year. 

However, Paul Smee, director general of the CML, stressed that while activity across various property markets was either somewhat muted or fell in July, at that early stage it is hard to determine whether such figures are indicative of Brexit impact, or of a market "already cooling".

Speaking about other potential factors, he explained: "We do believe that the buy-to-let lending market is still readjusting after the large level of activity before the changes to stamp duty on second properties in April. 

"Remortgage lending on the other hand has continued to grow, and reacted with a seven-year monthly high. Borrowers seem keen to take advantage of the wide range of competitive deals in the market and, following the base rate cut in August, this is likely to continue," he added.

August falls followed by more positive September figures

Figures and analysis released by the CML on October 20th help place these initial impressions in a wider context. Following a difficult July, the market showed signs of bouncing back in August, with a further recovery in sentiment in September. 

"House purchase approvals fell to a 21-month low, with just over 60,000 approvals in August. While the Bank of England's prediction in August of 56,000 approvals per month over the next nine months looks to be getting closer, we still see this as too pessimistic, and expect a recovery, as sentiment improves," the CML states.

Indeed, the CML estimates that, in September, gross mortgage lending reached £20.5 billion. While this represents a dip from August's total of £22.1 billion, it is still the highest figure for any given September since 2007, when gross lending totalled £29.9 billion. Therefore, overall it suggests a market that, while experiencing fluctuations impacted by factors such as stamp duty changes and political uncertainty, is recovering in a long-term context. 

Indeed, for the third quarter of this year, gross mortgage lending has been estimated at £63.6 billion, which is four per cent higher than the same period in 2015, and 11 per cent more than the second quarter of 2016.

Speaking about the latest CML figures and commentary, CML senior economist Mohammad Jamei said: "Housing market sentiment continued to improve in September, after recovering in August.
 
"As a result, we expect a modest rise in approvals, though at levels lower than seen earlier this year, as the lack of properties on the market for sale and affordability constraints continue to bear down on borrowers."

It also is worthwhile noting that the Royal Institution of Chartered Surveyors survey, released on October 12th, suggests that September was a positive month for the housing market in that new buyer enquiries rose for the first time since February 2016.

Beyond Brexit

Of course, as much as Brexit has been at the forefront of the nation's mind, it is not the only factor at play in the property market at the moment. Mingling with uncertainty caused by the referendum, for example, is the issue of supply; the CML figures show that, in September, the supply of properties for sale fell for the seventh consecutive month.

The fear is that this will not only limit transactions as would-be buyers fail to find properties to purchase, but that prices will rise in response to competition for a contracted pool of properties. 

Another contributing factor to market fluctuations is tax changes - particularly the stamp duty change in April. Speculation ahead of its implementation and reactions once it came into force had a marked impact on performance in the first two quarters of the year, and it still seems to be affecting the market today, with the buy-to-let sector particularly suffering a dip in transactions.

The CML suspects this lack of buyer confidence will continue thanks to further tax changes coming in 2017. The April interest tax relief changes are a particular source of discomfort in the buy-to-let sector at the moment, with the National Landlords Association (NLA) pointing out that the changes will have an impact on most landlords' incomes, as opposed to the high-earning minority the government initially specified. 

The NLA is hoping to successful petition the government to revoke these proposed changes, which would come as welcome news to landlords and may buoy the buy-to-let sector. However, again this adds another element of uncertainty.

What does the future hold?

While there is uncertainty with the property market as a whole, currently the picture is of a sector in recovery - broadly improving while weathering fluctuations caused by political and tax changes. How this recovery will be affected by preparations to leave the EU and the actual triggering of Article 50 will be keenly watched by UK homebuyers and property investors both in the UK and across the world.