The impact of Brexit on UK property
By Bea Patel on 16 Jun 2016 in Industry News
With one week to go until the referendum on the UK’s membership of the EU, the debate is heating up. There have been many views, opinions and speculation as to how a Brexit could affect the property industry, but in reality, is there little evidence-based analysis on its impact?
With a Brexit taking us into the unknown, it is somewhat impossible to predict its impact. [Tweet this]
So what are some industry professionals saying?
Estate agent Carter Jonas asked leading property figures four questions in a recent client poll. It revealed that the majority believe a Brexit would have a negative impact on the property industry.
The poll results:
According to this poll, a possible Brexit is one of the major concerns for UK property professionals [Tweet this] – but other issues are also at the forefront of their minds. The housing shortage, rising construction costs and a skills shortage are other major challenges for the industry over the coming years.
Another report by the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) expressed that a Brexit would cut immigration levels and decrease future house prices. The report revealed that in 2018, the average UK house price would decrease by £2,300, and by £7,500 in London.
The findings also showed an out vote “could provide first-time buyers with breathing space as demand for housing eases off.” But on the flip side, it would hit the construction industry where 4.7 per cent of workers in Britain were born in an EU country.
And the result?
Mark Hayward, managing director of the NAEA, said: “in 10 years’ time we’d find ourselves with a severe skills shortage of construction workers. So even if we then had planning permission, investment and materials to build more housing, we simply wouldn’t have the resource to put the bricks and mortar together. It has the potential to have a very damaging effect on the future housing market.”
There are also other claims of falling house prices following a Brexit, but will this fuel more foreign buyers? Experts predict that if we leave the EU, sterling will weaken, making it cheaper for international investors to purchase property. However, with lower house prices, those priced-out of the market may have a better chance of getting on the property ladder. Treasury analysis shows house prices could fall at least ten per cent up to 18 per cent.
There is much uncertainty in the air and different opinions for leaving and remaining in the EU. Paul Smith, ceo of haart estate agent explains why the property industry will bounce back regardless of the result: [Tweet this] “Whether we remain in the EU or not, the UK, particularly London will not falter as a safe haven for investment. It is the uncertainty around our status in the EU that is causing the market to stagnate.
“Once we know the outcome, regardless of what it is, the property market will become reinvigorated. In the long term, house prices will bounce back once more as the age-old problem of a disparity between the amount of stock available and the number of buyers competing, rears its head.”
So what could be the possible outcomes following the vote?
Estate agent Carter Jonas predicts three possible scenarios’ and their view for each:
So will a Brexit affect the private rental market?
The NAEA and ARLA predict rents will fall slightly. The report suggests a short-term year-on-year growth in the rental sector from 2016 to 2018, as shown in the table below:
|Year-on-year growth predictions %|
Source: Brexit and the property market report, NAEA and ARLA
But in the long term, their predictions are negative. UK resident EU nationals are more likely to rent, and in the 2011 Census, over 50 per cent rented privately. A Brexit would reduce demand, and with a reduction in rental prices, some buy-to-let landlords may exit the market if they cannot recuperate their costs.
The pre-vote uncertainty has already dampened property activity. This is an expected reaction as buyers and sellers adopt a ‘wait-and-see’ approach, due to uncertainty of the market and its affect on property prices. Although some people will still buy and sell as their circumstances demand it – for example if a family must up-size, others have the flexibility to wait for the results of the vote.
What is clear is that it’s impossible to forecast the impact of a Brexit, as there is an unknown as to what the UK’s future would look like outside the EU. Property expert and commentator Henry Pryor explains why, no matter the result, house prices may be lower anyway: [Tweet this] “Whatever the result on 24 June, both sides have suggested that the housing market will suffer. While ‘what will happen to the value of my house’ is the number one question that journalists are being asked today, house prices will only suffer if interest rates rise or if mortgages are harder to get.
“Of course ironically, if sterling falls on a ‘leave’ vote then this will make UK property more attractive to foreign buyers! Rents won’t change, the wider economy may stumble regardless of the outcome, but otherwise the housing market is probably already starting to slow.
“House builders have written to the newspapers to claim that fewer homes will be built if we leave, but there is no evidence for this. The reality is that ‘in’ or ‘out’, you will still own something you can live in, which at the end of the day is the main purpose of a home.
“Would I buy a property today? Yes, if it were a home. No if it were an investment. I think there is a real danger that something you buy today could be cheaper tomorrow, and whatever the outcome on 24 June, we will be able to blame that on the fact that in a year’s time, house prices will probably be a little lower anyway.”