Brexit – how could property be affected?
On June 23rd, the nation decides whether Britain is to remain a part of the European Union. Investors across the board will be feeling cautious about the impact of a potential Brexit, and this includes those considering investing in property. For property, there are no stand-out factors that could swing the market either way, making it difficult to predict the exact effects on UK residential.
What we can say is that, overall, it is unlikely residential property will be significantly affected. Domestically, and internationally, property is seen as one of the safer asset classes amidst the uncertainty around the EU; certainly in comparison with other asset classes, like the stock market.
Our expectation is that the EU referendum will represent no more than a blip in the overall market cycle, with a potential ‘pause’ effect, as people wait on the result before entering the market. This belief is grounded in the fact that residential property remains driven by owner-occupier demand, and the government is currently trying to swing the balance even further back this way with the recent tax changes that hit buy-to-let investors.
It is often said that there are two property markets in the UK: prime Central London, and the rest of Britain. These markets perform very differently, and the impact of Brexit should be considered separately for each.
The UK excluding London: country-bound
Setting central London aside, the rest of Britain is less likely to be affected given the fundamental demand and supply imbalance, which remains whatever the outcome of the referendum. However, a ‘leave’ vote could have longer term consequences for the economy that would impact the housing market, and lower immigration from the EU could also have some impact on the demand side.
London: a global city
The story in prime London is quite different, because it is unlike any other British city. London is a global city, and it’s where most foreign investors are – so a Brexit could have a significant short term impact on its attractiveness as a home for overseas capital. The prime London market is already facing headwinds with higher stamp duty on buy-to-lets and second homes – and the uncertainty over the referendum could make matters worse. We are seeing a price correction in this niche market, which is likely to continue whichever way the nation votes on June 23rd.
That being said, any panic withdrawal from London property would likely be short lived, and restricted to those prime central areas which have been so popular with overseas investors. Moreover, if the pound were to fall in value in the aftermath of a ‘leave’ vote, UK property would become cheaper for foreign buyers, and this would actually encourage investment.
At Property Partner, we have avoided prime London. We only invest in areas that comply with our strict criteria for strong capital and rental returns over the long term. In the areas where we invest, we are confident that the basic economic law of supply and demand will continue to apply, irrespective of the result in June. Fundamentally, people will always need a place to live, and Britain is simply not building enough homes to meet this demand.
No matter the outcome on June 23rd, maintaining a diverse investment portfolio is key. Take a look at the range of diverse investment properties around the UK on our marketplace.