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Will the property market crash after Brexit?

Will the property market crash after Brexit?

What effect will Brexit have on the UK property market?

Could Britain leaving the EU cause a house price crash, or will the lack of EU regulations attract investors?

On the 23rd June 2016 the British electorate will be able to decide whether the UK will remain part of the EU. The prospect of Britain leaving the EU will affect the general economy, although there is much dispute as to whether the impact will be positive or negative. Furthermore, the prospect of Britain leaving the EU is predicted to have a massive effect on the UK’s property market and possibly cause a house price crash.

  1. Brexit's Potential Negative Impact on Property
  2. What positive impact on the property market could Brexit have?
  3. How is Brexit affecting the pound sterling?
  4. How can property investors take advantage of Brexit?

Brexit's Potential Negative Impact on Property

KPMG has recently published the results from a survey conducted by their accountants, which found that 66% of real estate experts believed that if Britain was to leave the EU, it would have a “negative impact on cross-border investment”. London is predicted to be the worst affected area due to the sheer number of foreign investors and workers from inside the EU.

Similarly, in an annual poll of 100 leading thinkers conducted by the Financial Times, not one thought that leaving the EU would have a positive influence on economic growth within the UK in 2016. This is partly due to all the uncertainty it would cause if Britain then has to negotiate new trading deals with other countries, which would then dissuade – even if only temporarily – company investment and spending.

Surveyors have already admitted that they expect a drop in house prices in the next month due to tax changes, and anecdotal evidence has also suggested that fears over a Brexit could also lead to a house price crash.

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What positive impact on the property market could Brexit have?

Some believe that the above is simply “scaremongering” and that leaving the EU will have little effect on the UK’s property market and that there isn’t a possibility of a house price crash. It was predicted that if Britain decided not to adopt the euro as its currency, businesses would move elsewhere within the EU. That didn’t happen, so why naturally assume businesses would move offshore should Britain decide to leave the EU?

Of course, property prices in London have surged due to demand from non-British investors, but the link between the demand and Britain’s membership of the EU is tenuous at best. Just 16.5% of buyers are EU members, yet 49% of all prime central London property bought was by non-British buyers.

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How is Brexit affecting the pound sterling?

The prospect of leaving the EU has severely affected the value of the pound. In February the value of the pound plummeted to its lowest value in seven years against the US dollar when Boris Johnson announced that he was going to campaign for a “leave” vote. It is predicted that the value of the pound is estimated to continue to fall, as the US raises interest rates and the Bank of England holds steady.

The consequence of the devaluing of the pound sterling means that in effect, imported goods will be more expensive which in turn can fuel domestic inflation. Similarly, economic growth in the rest of Europe has been sluggish too, with Germany’s economy output up just 0.1% in the last quarter of 2015.

Conversely, the drop in the value of the pound has made the UK’s property market even more attractive to overseas investors and just this month Hong Kong billionaire Joseph Lau of Chinese Estates acquired the Mayfair Headquarters of bank Kleinwort Benson for £121.7m, bringing in a 3.5% yield.

How can property investors take advantage of Brexit?

As previously stated, due to the uncertainty regarding the EU, the Bank of England is forced to keep its interest levels low for longer. The Bank of England is not expected to raise its interest levels for another year at least, so now is the perfect time to secure a mortgage and invest in property, as money sitting in the bank will not yield any significant return. Investing in property is a clear way to generate revenue.

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The current environment means it is the perfect time to apply for a mortgage, with lending up by 21% year-on-year and gross mortgage lending reaching £17.9 billion according to the Council of Mortgage Lenders, the highest lending total since January 2008.

Also, interest rates are low (Santander’s interest rate is currently 2.7% for clients looking to borrow between £250,000 and £3 million), which is encouraging investors as the rental income will comfortably cover the mortgage. It’s not known when interest rates will increase, so it is advisable to invest sooner rather than later to avoid disappointment.

“Now is the optimal environment for investing in student property in the UK. Interest levels are low which allows investors to gain a high yield from their investment.”. Says Investment Director Arran Kerkvliet, of award winning student property consultancy One Touch Property.

In 2020 the UK officially left the European Union, yet average house prices still increased by £13,316. Long term fundamentals such as an imbalance of supply and demand have buoyed house prices despite recent events. Discover why key fundamentals in the UK's property sector mean a house price crash in the UK is an unlikely scenario.

If you are still keen to invest in the current environment, but you are not sure of your next steps, why not find out how to start investing in property and read our tips for succcessful property investment to further your journey.

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