London’s property market is feeling the pressure from political uncertainty, with the U.K.’s vote on its European Union membership, mayoral elections in May and weakness in the pound contributing to falling house prices in some areas, according to the Royal Institution of Chartered Surveyors.
Demand from house buyers fell sharply in the capital in March, RICS said in a statement on Thursday.
That’s reflecting investor concern about the outcome of the June 23 “Brexit” referendum that has helped pushed sterling lower, as well as the introduction of a higher tax rate on buy-to-let properties and second homes in April.
RICS’s U.K. house-price gauge fell to 42 in March from 50 a month earlier, falling short of the median estimate of economists in a Bloomberg survey for it to remain unchanged. Near-term sales expectations across the country slipped below zero for the first time since 2008.
“As the buy-to-let rush has now run its course, the national market is starting to slow and this lull is especially evident in London,” said RICS Chief Economist Simon Rubinsohn.
“Prices have now started to edge down in parts of the capital, although the weakness is concentrated in central areas. The EU referendum is likely to be an influencer in terms of the damper outlook for London in particular.”
While London property prices are expected to keep falling in the near term, expectations further out are positive for both the capital and the country as a whole.
“The imbalance between demand and supply will still exert a strong influence on the market, with house prices expected to rise by close to 25 percent over the next five years,” Rubinsohn said.
The mixed outlook for house prices was echoed in a separate report by mortgage lender Halifax on Thursday that showed confidence dropped to the lowest in over a year in March.
While optimism is declining as consumers become increasingly uncertain about the U.K. economic outlook, 65 percent believe average property prices will be higher in 12 months time, the mortgage lender said.
Moody’s Investors Service said in a report Wednesday that while an exit from the EU wouldn’t shake up the U.K. mortgage market overall, London is the most sensitive region due to its higher proportion of foreign nationals, buy-to-let properties and its exposure to the financial-services industry.