UK investment bank and stockbroker finnCap thinks London house prices could fall as much as 20% in the wake of the Brexit vote.
In a note on Friday, finnCap says uncertainty surrounding the UK’s economic future will lead investors to put a big discount on property.
That may weaken demand from overseas investors and anyone else buying a house as an investment. As a result, it could drive down prices in London, where investors have played a big role particularly in the prime end of the market.
The stockbroker predicts a fall of 10-20% in house prices in Central London over the next year. Here’s finnCap:
“There should be an immediate step down in the value of commercial and residential real estate and marginal investment projects are likely to be shelved. This is likely to happen quickly and feel fairly uncomfortable, accompanied by a raft of negative announcements and media coverage (eg: lock down in redemptions from commercial property funds). It is probably sensible to assume a 5-10% decline in commercial and residential property prices over the next 12 months, with 10- 20% possible in more hyped areas (eg: bits of Central London).”
Property has been one of the first markets to take a hit from the UK’s surprise Brexit decision. Multiple UK property funds have been forced to freeze withdrawals after being overwhelmed by people trying to pull money out.
Upmarket estate agent Knight Frank also said recently that luxury rents in London dropped by 1% in the first quarter of the year when compared to last. This was pre-EU referendum but uncertainty in the run up may have had an impact.
While finnCap predicts a big drop off in house prices, it doesn’t think we’ll have another financial crisis as we saw around the world in 2007/2008 when the subprime mortgage bubble burst.
“Luckily the Bank of England is on the case and UK banks are fairly well capitalised so, while uncomfortable short term, we do not expect this re-pricing to spill over into the wider economy causing extended financial distress (as seen post-Lehman). But it clearly needs to be watched closely over the next few months.”
finnCap is the biggest broker for companies listed on Britain’s AIM market for smaller, growth companies.