Home>July Edition 2016, Blog>What leaving the EU means for UK property

What Leaving the EU means for UK Property

On June 23rd the British public voted to leave the EU. Our Property Analyst Callum Ferguson follows up on this historic referendum, analysing what this means for the UK property market.

On Thursday June 23rd, citizens of the UK voted to leave the European Union, in a move known as “Brexit”.

This had an instant impact on the economy. The pound fell to its lowest value in 31 years against the dollar, and trading was temporarily suspended on several banking institutions.

Critics of the decision to leave the EU argue that this was to be expected, while those who voted to leave claim that the long-term benefits justify the current situation.

With arguments on either side, it’s difficult to determine who will be proven correct. And, specifically, how the UK property market will be affected.

So we’ve taken a look at what the experts have to say.

A Period of Uncertainty is Inevitable

The general consensus is that nobody can, with any degree of certainty, say what is going to happen in the coming months and years.

“The outcome of today’s EU referendum will create a period of uncertainty among homeowners, buyers, investors, landlords and developers. We can expect international investors to look a lot harder at the UK as a market; this will have a consequential impact upon the house building sector as investment may be stalled.”  Managing director of National Association of Estate Agents (NAEA)

“Brexit” has created instability in the markets since the result was announced. But there is a long way to go before anything is made official.

The UK needs a new Prime Minister, and that individual then needs to enact Article 50. This will start a process of negotiating the country’s exit from the EU, which could take up to two years.

Markets around the world will continue to react to all the events that take place, and the property market is likely to be affected.

The Short-Term Outlook

Despite the uncertainty, many experts believe the housing market won’t suffer any serious consequences in the short-term.

As Countrywide (the UK’s largest group of estate agents) states, people still need homes:

“The fundamentals for the market remain: people will continue to need somewhere to live and so aspiration for homeownership and demand for quality stock in the rental market will stay strong.”5

The NEAE organisations believe that prices will remain stable for the time being. However, they stress again that “we cannot be certain about the next quarter”.

It is also possible that property investors specifically could see benefits from the current situation. With the value of the pound falling, the UK property market looks more appealing to international investors.

Chestertons (One of London’s longest standing estate agents) believes that this could apply to London, in particular:

“Many global investors will take advantage of this [the pound falling], just as they did in the immediate aftermath of the last financial crisis… Demand for London homes to buy is highly likely to remain strong, and the city will still dominate as a global capital.”

Of course, nothing is certain. But several experts clearly believe there are reasons to be positive.

Medium and Long-Term Outlook

As mentioned earlier, nobody can predict with any degree of accuracy how this vote will shape the property market in the long-term.

There are too many factors at play to do so. However, some experts are noticeably more positive than others.

“Indeed if developers scale back and new housing supply contracts. Significantly, there may even be upward pressure on prices. Prime London is most exposed to greater risk, but the underlying fundamentals (lifestyle, safe haven and education offer) remain robust.” CBRE

Knight Frank argues that the “long-term dynamics remain unchanged”4, and that “real estate is an investment that works best for those who pursue long-term goals” 4.

Nonetheless, it did acknowledge that the usual challenges facing the property market are still in place, such as a low supply of housing.

There is currently a big gap between the demand and supply for housing, particularly in the London area. It is important that new build housing projects are not significantly delayed in order to prevent this gap from widening.

Carter Jonas (a central London estate agency) states that the bond and equities market is in a volatile position, which “reinforces the case for real estate investment”.2

The estate agents added: “Looking forward, we firmly believe that fundamentals will continue to drive the UK property market. The UK has one of the largest and most sophisticated property markets in the world and because of this it should remain a magnet for global occupiers and investors.”2 

Not everyone is as confident, however. Jones Lang LaSalle (a multi-national property investment management company) believes that it is a “complex”3 situation, and that London could be affected more than other areas of the country.

The firm also referred to the “deep housing supply imbalance” 3, and criticised the country’s politicians for failing to deliver a credible solution on this issue.

So, what does leaving the EU mean for UK property?

It cannot be stressed enough that the future is uncertain. Nobody knows what is going to happen, and it would be difficult to argue one way or the other with any confidence.

However, many of the experts who have commented on this issue believe that things will not change a great deal in the short term, with the exception that more international investors may see the UK as a viable opportunity.

Mark Posniak, Managing Director of Dragonfly Property Finance, also felt it was impossible to know the full ramifications of the Leave vote and felt the structural supply issue underpinning the UK’s property market could prevent the prices falling.

“Overseas demand may also increase on the back of the decimated pound. For many overseas investors, buying British property just got a lot cheaper. Short-term liquidity issues are possible, if not likely, among bank lenders and non-bank lenders that have bank funding lines. In the days and weeks ahead, banks and every other type of lender will be monitoring events forensically.”1 

Bob concluded by seeing a lot of positives from the vote adding:

“I sense, too, an opportunity here for lenders. The big banks will be profoundly affected by Brexit. This is likely to shrink further their already sparse appetite for risk. As they retreat to review their options, fast-moving entrepreneurial funders will have a golden opportunity to fill the gap they leave behind.”1 

As for the longer term impacts, we will have to wait and see. But many have made the argument that the UK property market is strong, which could help it to avoid any serious repercussions.

If you have any questions or concerns about the “Brexit” impact on housing, don’t hesitate to get in touch with us here at Cogress.

Sources:

  1. http://www.developmentfinancetoday.co.uk/article-desc-4709_property-development-sector-reacts-to-brexit#.V3Pj2KJnCap
  2. http://www.carterjonas.co.uk/news-and-events/news-and-press-releases/Jun-2016/eu-referendum-result.aspx
  3. http://www.jll.co.uk/united-kingdom/en-gb/news/2656/making-sense-of-brexit-what-happens-next-after-the-vote-to-leave-the-eu
  4. All quotes from Knight Frank can be sourced from this downloadable report: http://www.knightfrank.co.uk/research/reports/eu-referendum-comment-june-2016-3864.aspx
  5. https://next.ft.com/content/104ea986-3c75-11e6-9f2c-36b487ebd80a

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2017-05-29T22:39:56+00:00