Brexit and the impact on British property
Friday’s vote to leave the EU sent shockwaves through the nation. The pound dropped significantly in value, stock markets were affected globally, David Cameron resigned his post as UK Prime Minister, and media, politicians and the public started searching for answers to why this happened and why it was so unexpected.
But in the midst of political and economic uncertainty and the wealth of analysis that has flooded the news cycle since Friday, what does the result actually mean for the property sector?
One unifying opinion that we can be sure of is that, as it stands, it is virtually impossible to predict what will happen to the UK housing market in the short to medium term.
There will inevitably be a period of short-term uncertainty and therefore volatility. Once the initial shock has worn off and the Government and Bank of England have taken actions to account for the result, the markets will begin to settle and the picture for the property industry will become somewhat clearer.
However, we can trace levels of uncertainty back to pre-referendum, as outlined in a survey by the Royal Institution of Chartered Surveyors (RICS) which predicted that house prices were set to drop for the first time since 2012.
Our own consumer research conducted pre-referendum also showed that Brits were worried about how a vote to leave the UK would affect the property market. Three in five (61%) of those who thought their house price would decrease if Britain leaves the EU, believe that it will take five years or more for the value of properties to return to their current levels, and a further quarter (29%) believe it will take ten years or longer for the UK property market to stabilise.
With even greater uncertainty ahead it is likely that the effects of Brexit on buyer confidence will continue to impact short-term transactions, as already suggested by the collapse in share price of some UK housebuilder property stocks.
This is a view held commonly amongst property experts and valuers. Having sought consumer opinion pre-referendum, we have now taken a look at the market reaction and outlined some of the key things you need to know.
Comments from Savills’ UK head of residential research, Lucian Cook, suggest that in the medium term the effects of reduced growth in wages and increases in mortgage interest rates will be felt, and will contribute to an overall retraction in the market, particularly in less affordable areas such as the capital. However, there is reason to believe that property elsewhere in the UK will be less affected by the result, and that the London market will be buoyed by increased foreign investment.
Analysis from CBRE – EU Referendum: Britain’s vote to leave and the implications for real estate – highlights that it is the financial services, professional services and tech industries that will feel the impact of a Brexit most keenly, a view echoed by Knight Frank in their EU Referendum Update research. Real estate, in theory, should be less affected. However, consumer confidence is key, and disruption of this level will inescapably impact decision-making.
CBRE goes on to say that construction and development will be impacted by lack of clarity, with developments not yet underway likely to face delays due to uncertainty. Offices will be hit the hardest, with long-term development plans dependent on both the stability of the economy as well as costs of construction – which could increase as a result of changes to migration.
Whilst investment sentiment will no doubt be affected by uncertainty, in the long term the fundamental attractions of the UK property market will prevail and it will continue to attract global interest and investment. Savills’ Lucian Cook adds that the fall in the value of sterling will also encourage international buyers back into the market despite higher stamp duty, which will likely help property prices recover to pre-Brexit levels.
In addition, Knight Frank’s Chief Economist, James Roberts, advises that immediate action is likely to be taken by the Bank of England to help restore confidence over the summer – including interest rate cuts of up to 25 basis points, and possible quantitative easing.
Knight Frank agrees that the devaluation of the pound, along with the exchange rate effect, will draw in overseas investors and prop up a fall in demand domestically. Combined with the re-emergence of inflation and a more solid indication of the direction of the UK economy, it predicts that asset prices could be back at pre-referendum levels as soon as summer 2017.
But how does this affect business at Wellesley Finance? Graham Wellesley, founder of Wellesley Finance, outlines his views below:
“First and foremost, we should stress that it is unlikely that we will experience any dramatic change in the short term. House price growth will be slow, but it will not necessarily reverse. We will therefore continue to lend where there is both demand and liquidity, ensuring strong loan to value ratios, as we always have done. We will continue to look at both the strength of the property and the client and make robust, informed decisions.
“We will continue to monitor on-going developments politically, economically and socially over the coming months to assess whether any change in approach is needed. Ultimately, our customers are at the heart of our business and we are therefore prepared to make any necessary changes to protect or benefit them as the longer-term picture emerges.
“In a sea of uncertainty, one thing is very clear. Whether Brexiter or Remainer, property owner or developer, the UK needs to pause for a moment, take stock and stay calm. Negotiations will take several years and there is no cause to believe Article 50 will be invoked until we have a new Prime Minister at our helm.
“At Wellesley Finance, we are a fundamentally British business, and our mission is to better fund development across Britain. That is how we plan to remain, EU or no EU.”