Possible effects of Brexit

Three years have now passed since the Brexit referendum led to the decision by the UK to leave the European Union and Parliament is in stalemate about what to do. The British public have been fed a great deal of scaremongering perpetrated by many members of the UK government as well as many of its high ranking officials. The picture that has been painted is one of doom and gloom but the UK economy has shown its ability to continue to flourish and the doom predictions failed to emerge.

Assuming Brexit happens on 31 October as the current prime minister has vowed, it will not be truly known for some years after we have left the European Union and begun trading with the rest of the world if the decision was the correct one. We at investment-property.co.uk have therefore decided to create this market guide which takes some general statements from prominent people and from some property market leading companies and present it along with some of our own comments. We will update this guide from time to time as new information and likely outcomes start to emerge.

Perceptions of Brexit negotiations

The UK public currently believes that the European Union is being inflexible and unreasonable in its approach as during the initial stages it focused only on compensation, before it would agree to start discussions. Because the referendum vote was fairly close, many UK politicians have gone against their constituents and are now campaigning to stop the UK leaving the EU. While this is continues, the EU will simply refused to negotiate and keep giving time extensions in the hope that our parliament will overturn the decision of the people.

As Britain is a net financial contributor to the EU, when it leaves it could cause internal problems within the EU as the EU budget may have a shortfall.

The EU does not currently have co-ordinated armed forces but has been talking about its creation. This would be a very expensive exercise and something that if implemented might be very difficult to control as it is hard to imagine an army with 27 different languages forming a cohesive fighting force. Considering recent actions by Russia, it is not inconceivable that conflict could emerge.

Property position today for investors

The UK is hoping that the EU will agree to renegotiate the deal agreed with the previous Prime Minister so that we don’t leave on 31 October without an agreement. The likely outcome of these discussions is unknown but the general thinking is that some form of mutually beneficial agreement will be reached as it is strongly considered to be in the best interests of both parties.

At investment-property.co.uk we believe that the many conflicting statements that have made about Brexit on the UK economy is confusing people and we believe that the key fundamentals that underpin the strength of the UK property market will not change after Brexit.

Recent property buying trends

A recently published mortgage report by Skipton International gives an insight into how overseas investors are viewing the UK property market and makes very positive reading. Although it focuses on overseas investors it is probably fair to say that the trend is likely to apply equally to UK investors.

  • Mortgage indicator – An increased number of investors are looking to purchase buy-to-let homes and Skipton International have seen mortgage enquiries from overseas investors more than double in the last year.

 

 UK property in the short term

Since the referendum the pound has remained weak and has caused the inflation rate to rise a little. This has been a great boost to the UK exporting industry as cheaper goods have resulted in increased sales and improved employment figures.

  • Investors considering buying property may see this weakness in the pound as an advantage as they have an opportunity to acquire an asset that would have cost substantially more before the referendum. Just after the referendum UK property became around 12% more affordable in international terms and although this has reduced a bit still represents value.

UK property in the medium term

We have recently experienced stock markets reaching historic highs as confidence in the UK economy increases and property values have also followed this trend. However should the doom and gloom merchants prevail it could result in lending restrictions from banks and building societies looking to offset their risk. In this situation investors could find it difficult to obtain a mortgage.

Crucially if lending slows so will investment into the private renting sector and if supply levels do not keep up with this spike in demand for rental accommodation, property investors will see strong growth in their yields

UK property in the Long term

A key advantage of leaving the European Union will be the more favourable new trade deals that the UK will be free to negotiate with countries outside the European Union. While Britain is a member of the European Union it is unable to arrange deals with other countries. Countries with strong economies including the USA have stated that they are keen to secure deals with Britain and with these agreements in place the outlook for the UK could be much more positive and this should apply to the UK property market.

The Property investor

  • Rental yields and property values – After the crash in 2008, property investment was seen as a safe haven for investors in the rental market and as housing shortages have continued to prevail, rental yields have increased. Property values initially suffered but have now rebounded and are expected to continue their upward trend.
  • New Trade Deals – When the UK is free to establish new trade deals with the rest of the world beyond the EU, it should see itself having the prospect of achieving substantial future growth with all of the benefits that would bring.
  • Property investment – Long term economic forecasts for a post Brexit UK would appear to suggest that investors buying property now are likely to see significant capital gains in the years to come.

The long term future economic development of Britain will depend on its ability to adjust to changing world conditions while retaining a currency that can adjust to pressures. At investment-property.co.uk we see no reason at this time to be pessimistic.