How economic uncertainty affects the property market


While there are many factors involved with determining the mood and movement of the property market, few things have a bigger impact than uncertainty. It may be argued that even economic terms that are unsuitable to the property market are better than uncertainty because at least people know what they are dealing with.

In the past three years, the United Kingdom has been subjected to major events and issues that have caused considerable uncertainty in the property market. In 2014, Scotland’s Referendum on Independence had a notable impact on the Scottish property market while there was a minor impact on the UK property market as a whole. In 2015, the General Election of May 2015 led to many people holding off from buying or selling property in the lead up to the vote and this behaviour has been repeated in the run-up to the 2016 EU Referendum vote.

There have been other factors impacting on the UK property market in these times, the general condition of the economy and the April 2016 stamp duty changes for property investors being notable examples, but the uncertainty surrounding these events has definitely affected the property market.

It is easy to see why uncertainty about the future will impact on the decisions made by people and businesses. Buying a home or investing in the property market is the biggest decision and expenditure for most people and firms, and it is something that you should be very confident about before committing to the project. While it is impossible to be 100% certain or confident about any investment plan, the level of uncertainty in a market means that people and businesses cannot invest with full confidence.

People are unsure about their long-term job prospects

In the build-up to all three recent referendums or elections in the United Kingdom, there have been many warnings over the economy and whether jobs would be available in the country. The uncertainty over what firms would be allowed to operate was a major component of the 2014 and 2016 Referendums and with this backdrop, can you blame people for deciding against buying a home?

If you cannot honestly say that you will have a job in two to three years’ time, should you be looking at committing yourself to paying back a loan over twenty-five to thirty years? This level of economic uncertainty has led many people to decide that buying a home isn’t right at this point in time. It also means that some people who may have decided to sell their home and buy a larger property decide against doing so. If there are many families or individuals across the UK taking this approach, not only will they decide against buying a new home, their current home won’t be placed on the market, providing one less home for potential buyers to consider.

If this is repeated across the country, a fall in supply and demand in the property market can have a depressing impact on the property market. The labour market is cited as one of the biggest factors that impact on the property market and this is why an uncertain economic landscape can stall the property market.

People are not confident about interest rates and long-term mortgage costs

Even people who are confident about retaining a job in the future may not be confident about being able to afford the cost of their mortgage. Uncertainty in the market makes it difficult to plan ahead and it means that you should plan for a wider range of outcomes and eventualities.

When mortgage providers review an application, they will undertake a “stress test” which means they look to see if the applicant has suitable financial leeway to deal with changes to their life or the economy. This means that the application process takes into account life-changing factors like starting a family or losing a job but there is also consideration made about changes to interest rates and mortgages.

Knowing that changing interest rates can significantly impact on a person’s ability to pay for a mortgage or even obtain a mortgage means that people will take this into consideration when thinking about buying property. An uncertain market makes it difficult to predict what interest rates will be, and this will leave people deciding against investing in property.

Property developers are unsure whether to commit to major projects

In the same way that consumers are unwilling to commit to a major and costly long term project in a period of uneconomic certainty, businesses would prefer not to invest in these times. There may be some firms who view this market as an opportunity or a chance to benefit while rivals sit out of the market but on the whole, uncertainty dampens investment.

If fewer properties are being built, there will be a decrease in the supply of property, which makes the market more challenging more many buyers.

Lenders are unsure whether their applicants represent a good fit for their business

Mortgage lenders will also have to revaluate the market during times of economic uncertainty. The stress tests and suitability criteria become even more important during these periods and this is why many firms are reluctant to provide mortgages to many applicants during periods of economic uncertainty. If the market is unsure of what is going to happen in the future, how can any firm be expected to predict whether an applicant is a good option to provide significant funding? At times like this, most mortgage lenders will provide fewer mortgages.

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