What Brexit Could Mean For The UK Property MarketAnalysis, Background
In this report I’ll take a very quick look at what Brexit from the EU could mean for the UK property market.
First of all let’s look at a few fundamentals:
What could happen to interest rates?
It’s as well to remember that interest rate rises have been on the cards for a couple of years now. Most analysts are suggesting that, in a period of uncertainty after the referendum, the Bank of England is likely to be cautious about raising the interest rate. But the inflation figures of late could see some small upward movement soon.
What could happen to the value of the pound?
Bearing in mind its pre-referendum, buoyant level chances are that it will depreciate further. In the process it could, perversely, make UK property even more attractive to foreign buyers than it already is.
In a report last year Dutch bank ING suggested that if the UK voted to leave the EU then the value of the pound could fall to one euro=90 pence, the level the pound was at in 2011. Today it already stands at one euro=87 pence. Bear in mind the value of the euro is weak anyway.
Would foreign buyers be shut out of the market?
The UK market, particularly in London, has been fired up by foreign buyers over the last few years, although activity has slowed down of late as a result of tax changes as much as anything else. So would they be unable to buy, impacting the market as a result? Probably not, since the entitlement of foreign buyers to buy property in the UK is enshrined in UK law, not EU law. They might not find it such an attractive investment (even with a weaker pound) though.
Companies and funds could very probably reduce their involvement in the property market however. A pre-referendum report by Consultancy firm EU reports that 31% of investors they have surveyed say they are likely to reduce or freeze their investments in the UK up to 2017.
How could it effect the rental property/buy to let sector?
The rental property sector has become a very significant part of the UK property market over the last decade. Since a significant portion of demand in this market comes from migrants (one in ten of the UK workforce are now from abroad) who probably wouldn’t be able to come so easily anymore, demand for rented accommodation could possibly decline.
It’s worth remembering that most areas have a huge surplus of demand for accommodation over supply, however, so the impact could be negligible.
What will happen to prices?
Most experts are still predicting that after a blip in the election period in 2015 house prices will still continue to rise steadily by around 3-5% a year each year for the next five years and will be around 20% higher by the end of the decade. That’s a fairly modest forecast for annual price appreciation though, so unless UK economic growth and employment levels are severely affected by Brexit (which in all honesty it’s really too early to call) it’s not unlikely that prices could still continue to show modest rises.
It is worth bearing in mind that any impact on property prices is more likely to be felt in the London/south east property market, and much less elsewhere …. and that seems to be happening already.
Lastly, remember that property markets are super-sensitive to market sentiment. The UK property market is as much likely to be affected by uncertainty in the period before and after actual Brexit as much as anything else.
Property Insider Editorial by Mark Hempshell, Editor in Chief