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European Business So much for the Brexit effect: U.K. home prices defy worries

Apartments and houses stand beyond trees on a residential housing estate in Chafford Hundred, U.K., on Tuesday, June 24, 2014. U.K. house prices dropped by 1.2 per cent in August from July, but that’s typical in the summer, and the average price is still 4.1-per-cent higher than last year.

Chris Ratcliffe/Bloomberg

When Britons voted to leave the European Union in June, the outlook for the housing market was so dire the share price of one of the country's biggest home builders, Persimmon PLC, fell 28 per cent the day after the vote.

But all that gloom now looks misplaced. Last week, Persimmon reported a 29-per-cent increase in pretax profit for the first half of the year and a 12-per-cent jump in revenue year over year. Since the June 23 referendum, the company said visits to its home projects had gone up by 20 per cent, private sales were up 17 per cent and there were fewer cancellations than a year ago.

"While the result of the EU Referendum has created increased economic uncertainty, customer interest since then has been robust," said the company's chief executive Jeff Fairburn.

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Home builders are only part of the overall housing market but almost every indicator points to a moderate impact from Brexit, at least for now.

Related: The EU will endure after Brexit. But it should ditch the euro

The number of homes bought in July was about the same as in June, according to government figures released last week. And while the number of mortgages approved in July was down 19 per cent year-over-year, the gross amount borrowed was up 6 per cent, according to the British Bankers' Association.

"The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum," said Rebecca Harding, the BBA's chief economist.

House prices are also holding up. Online realtor Rightmove said the average house price across the country had fallen 1.2 per cent in August from July, which was typical for the summer months. It added that the average price was still 4.1-per-cent higher than a year earlier.

"As the dust settles on the EU referendum vote, forward looking indicators are now a little less gloomy, with twelve month price and sales projections edging back into positive territory in the latest results," said a recent report from the Royal Institution of Chartered Surveyors.

Richard Donnell of Hometrack, a property market research firm, said house prices aren't likely to fall because of Brexit, but London's market is showing signs of cooling. In the three month period ending July 31, Hometrack's house price index showed that prices in London increased by 2.1 per cent, the lowest quarterly rise in more than a year. Meanwhile, prices in places such as Manchester, Birmingham and Nottingham were up by as much as 8 per cent.

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"We've got a bit of a two-speed market where London is slowing and the rest of the country is holding up on value for money and better confidence," Mr. Donnell said.

House prices in London had been rising at close to 12 per cent year-over-year, but that's expected to slow to around 6 per cent because of Brexit, he added. However, London prices have risen by 60 per cent since the 2008 recession, whereas prices in the rest of the country have only just gotten back to their prerecession levels. London has also been hit harder by recent tax changes aimed at people who buy investment properties.

"People have realized that nothing much has changed since Brexit," Mr. Donnell said. "They are probably conscious that something might change in the future, but at the moment it seems quite a way into the future."

There are still plenty of worrying signs. The Bank of England and most economists have cut growth forecasts for the British economy because of Brexit and home buyers could feel the pinch.

"We suspect that house prices could ease back by around 3 per cent over the latter months of 2016 and there could well be a further 5-per-cent drop in 2017, said Howard Archer, chief U.K. economist at IHS Global Insight.

"We believe housing market activity is likely to be limited over the coming months and prices will weaken as heightened uncertainty following the U.K.'s vote to leave the EU weighs down on consumer confidence and willingness to engage in major transactions, and also hampers economic activity," he added.

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