Funding dilemmas
Posted by: Titlesolv


The post-Brexit property market is proving to be unpredictable with all involved taking precautionary steps to guard themselves against any potential longer-term fallout.


Following three years of growth the housing market had already been slowing in the months leading up to the referendum. The result certainly did not improve its fortunes. Perhaps unsurprisingly in the aftermath of the referendum result, the FT reported that homebuyers were now “assessing the potential impact of the vote on house prices”.


As a result of the referendum result some mortgage brokers and estate agents noted that a small proportion of buyers were pulling out of transactions due to concerns over negative equity with commentators also predicting a house price readjustment.


In response a base rate cut by the Bank of England had been predicted in order to tackle what The Guardian called the “Brexit crisis”; in the event however the Bank decided to keep to the current rate of 0.5%.


As shares in housebuilders and banks were falling amidst this “crisis”, the Bank’s governor Mark Carney commented that “some monetary policy easing will likely be required over the summer”. This remark of course came after the Bank had already relaxed banking sector rules to free up lending to households and businesses.


In addition to these actions the Bank is also monitoring a number of sectors, including the buy-to-let lending and commercial property markets.


The latter has seen a number of major funds take steps to stop nervous investors from withdrawing their investments; a move that could force funds to sell off properties at a loss. Reports in The Times suggest that up to £5 billion worth of property assets would need to be sold to satisfy the potential flood of redemption requests by investors.


Property funds worth up to £18 billion stopped trading after the Brexit referendum result. These included Standard Life, Aviva and L&G; the majority doing so for 28 days.


Aberdeen Asset Management meanwhile, which initially only suspended its fund for one day, has now extended the suspension of its circa £3 billion property fund by over a week. The company had already cut the value of its fund by 3.75% in late June.


One senior analyst predicted that these funds were likely to “remain on ice” until asset managers were able to sell properties to meet their redemption responsibilities.


Investor concerns about the long-term forecast for property are understandable and there is certainly less of an appetite to make any large purchases. Perhaps the most prominent example of this is AXA Real Estate temporarily suspending its plans for a 62-storey tower in the City; a development previously expected to become the capital’s tallest tower. AXA told The Times that it was considering all options” for the £1.5 billion project at 22 Bishopsgate. Questioned on the wider London office market, a spokesperson for the developer told Estates Gazette that it was “way too early to tell” which projects would go ahead and which ones will stall.


Whilst it is true that the drop in the value of the pound has made the domestic property market more attractive to foreign investors the current nervousness surrounding asset values is likely to continue at least for the short term. It is also likely that transaction volumes will be affected.


In a post-Brexit market, title insurance will play a vital role in bolstering the attractiveness of assets. When assets are sold, this protection mitigates risks and ensures otherwise uncertain transactions are completed in a timely and efficient manner. Wherever warranties are required but not obtained on portfolio sales, tailored insurance solutions provide a purchaser with confidence and reassurance. Similarly, any foreign investors holding off on buying in the UK will be comforted by the absolute guarantee that title insurance provides.

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