Prices in London’s Prime and Emerging Prime areas have been on a steady decline since the summer of 2014. This was a result of the launch of the Mortgage Market Review and more recently, the Brexit vote has contributed to further turbulence in the market.
Buyers and investors expecting a ‘U-shaped’ recovery from here will be disappointed. Our analysis of two previous financial shocks (“Black Wednesday”, September 1992 and the global financial crisis of 2008) has shown that we are very much in charted territory.
On both occasions, supportive fiscal and monetary policy responses from the government and the Bank of England created the conditions for a ‘V-shaped’ recovery, with property prices recovering quickly. We see the same happening now.
Interest rates are forecast to be cut in August. On top of this, the Bank of England’s decision to reduce the countercyclical capital buffer rate of banks will ensure that lending to the residential market continues to remain healthy.
The major beneficiaries of the current weakness in our Prime and Emerging Prime markets are overseas investors, who are benefiting from the post-Brexit weakness of £Sterling against the $US.
Our Prime and Emerging Prime indices are showing that prices in $US terms are 25.09% lower in Emerging Prime and 27.87% in Prime than two years ago (see chart below).
Weak and uncertain markets also create opportunities for home owners to trade up in terms of size of property.
Rents in Q2 2016 weakened, with Prime areas dropping 3.55% and Emerging Prime 0.37%. But yields on offer in parts of Emerging Prime are increasingly attractive to investors, particularly when compared to other asset classes.
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