Housing market expected to cool down as buyers 'wait and see'

The housing market is set for a rapid cool down in price growth and fewer sales as buyers adopt a "wait and see" stance towards the economy following the vote to leave the EU, according to experts.

Mortgages could also become harder to come by and less affordable if lenders decide to put tighter controls on their lending levels amid the uncertainty, it was suggested.

The London property market is expected to be the hardest hit as buyers sit it out to see how the economy, jobs and mortgage rates will be affected.

The capital has been the engine of the housing market recovery in recent years, with property values surging faster there than in other regions before the recovery started rippling outwards.

Much of the strong demand in London has been down to overseas property investors seeking a "safe haven" for their cash.

But there have already been signs of house prices cooling as the market held its breath for the outcome of the referendum. A stamp duty hike for buy-to-let investors, which came into force on April 1, has also disrupted the market, as property sales which might otherwise have taken place later this year were bunched up ahead of the deadline for the tax hike.

Earlier this month, the Royal Institution of Chartered Surveyors (RICS) said it expected house prices generally to head for a short-term dip amid the uncertainty. In the longer term, a shortage of homes available is expected to help support prices.

Richard Donnell, insight director at property analysts Hometrack, said the immediate impact of the vote "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".

Mr Donnell continued: "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% with sales volumes already down over the last year.

"House price growth is already weak and running in low single digits in central London areas and modest price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity."

Mr Donnell said that across London, market activity "is set to remain disrupted until consumers and the financial markets can see a clear strategy to manage the process to a position where the outlook for the economy, jobs and mortgage rates becomes clearer".

A report from property agent Knight Frank said that as well as buyers being affected, the uncertainty could also make sellers more reluctant to put their property on the market, "and this lack of supply will provide a floor under prices".

Knight Frank also said there is a chance that mortgage rates may become "detached" from the Bank of England base rate, which is currently sitting at 0.5%.

Lenders have offered some of their cheapest ever mortgage deals in recent years against the background of low interest rates.

But Knight Frank suggested that while the base rate could be cut further, lenders may actually start raising their mortgage rates as a technique to control their lending levels.

"The reduced availability and increased cost of credit could put additional pressure on transactions as well as affordability," its report said.

"However, it is worth noting that much mortgage activity recently has been in fixed-term fixed-rate deals, ranging from two to 10 years. Borrowers on such deals will not be affected by rising mortgage rates over these time frames."

Knight Frank said that a further weakening of the pound may attract more overseas investors to the top end of the housing market as property will look relatively cheap.

But "this impact will be constrained by the fact that around 80% of central London buyers are UK residents".

Mark Harris, chief executive of mortgage broker SPF Private Clients, described current mortgage availability as "good".

He continued: "However, when there is uncertainty it affects confidence and people put off making decisions. Those who were thinking about buying property may now decide to leave that decision to say next year, in the hope that property prices will fall in the meantime.

"The luxury end of the housing market is likely to be impacted. Some buyers may try to renegotiate deals that have already been done."

Sarah Beeny, owner of estate agent, Tepilo, said people will still need somewhere to live, "so the demand for housing will still be there, therefore, I think the property market will be unlikely to be affected in most areas of the country in the medium to long term".