All The Latest On Brexit
Last updated 7th September 2019 • Lois Arcari • JaeVee
It seems like there’s been a new string of articles every day since the Brexit vote back in 2016.
You even see dozens of contradictory articles all in the same week.
Now that Boris is in number 10, there’s no denying that Brexit is going to happen - so how can we make it work for us?
If we look at the bare data, there’s actually a lot to suggest that there are some positives to be worked upon.
While you’d be hard pressed to find anyone who’d deny that Brexit poses risks and challenges, some investors are embracing this as an almost unprecedented time of opportunity if you invest smart and ignore the scare stories.
Most of the more optimistic takes on Brexit are centred around the idea of a ‘Brexit bounce’, the relatively good economic position in general in the UK and the perception of property as one of the most resilient markets out there.
So, what is the ‘Brexit bounce?’
Put simply, it’s the idea that the market will bounce back quickly from any short term downfall after we leave the EU.
In fact, some experts argue that once we know the conditions of any ‘deal or no deal’, the clarity will prove positive whatever other effects it causes.
After all, it’s easier to navigate a certain, if awkward position, than a completely unknown one.
It’s suggested that this bounce is highly likely based on 2 key ‘bounces’ which have come before 1) the steady rise of property prices after the recession in 2008 and 2) gradual ‘upticks’ in the property market as Brexit continues to be negotiated, where buyers have decided to take action instead of waiting for uncertain results.
As deadlines keep being moved around, customers feel unable to wait and see what happens.
Instead they are starting to have a ‘now or never’ attitude to jumping on the property ladder, helped by the fact that there are much higher rates of mortgage approval now.
It’s generally expected that any housing price decreases will have reached their peak by the end of 2020 and will continue to grow again from there on, but the scale and timing of such a return to growth is hard to predict.
Some volume of bounce back is largely predicted though.
While the fundamentals of the UK economy have remained largely positive, there is a sentiment of caution and indecision which has been fuelled by a constant stream of negative stories in the news.
Attractiveness of sterling and appropriate pricing will continue to influence market activity in the higher price sector.
PCL - Prime Central London - performance for the year predictions haven’t changed from 2% best case profit scenario.
Buy to let seems mostly unaffected by Brexit - indeed, research by the Cambridge & Counties bank has seen that 19% of landlords are preparing to grow their property portfolios by a third!
The student accommodation market is also going strong.
Seen as a stable market where everything from HMO conversions to luxury flats can see great profits, 61% of landlords are optimistic about the growth potential of this market.
Even when investors are more cautious of investing in the ‘usual’ forms of property, whole new types of developments are being imagined - including IKEA’s unpredictable stake in the affordable housing market.
Uncertainty is never easy to cope with.
But an increasing number of experts are saying that the uncertainty Brexit presents us with can actually be very beneficial in our industry.
Sellers are likely to be more worried than before the Brexit vote and increasingly eager to sell as the leaving deadline - October 31st - creeps up on us again.
This means it’s becoming an easier market to negotiate, with people likely to be offering lower prices than before.
Buying properties at these lower prices can maximise the potential ROI’s that smart investors could see in the coming years.
Experts are quick to point out that there are some markets that are almost invulnerable to market change.
London, after all, will always be one of the world’s biggest capital cities, with demand for property increasing year on year.
Students will always need off campus accommodation.
And ultimately, whatever happens - people will always need somewhere to live.
Although there are likely to be people moving out of London back into the EU, most investors seem unfazed, pointing out that there are plenty of people across the UK who are waiting to fill their places.
Agents have also noticed that there has been an uptick in buyer interest, as shown by new applicant registrations and viewings, which may be fuelled by these lower prices.
However, these have not translated into any increase in transactions, although they may do later in the year.
There are still too many overpriced properties on the market, and some of them have been sitting on the market for a long time, without benefiting from continued discounts which still don’t do enough to increase affordability - which highlights that any property should be put on the market for the right price from the very start.
If these houses finally fall to more reasonable prices, there are plenty of potential buyers waiting in the wings to catch them at their best price.
And even when prices go back up, we all know there’s still thousands of potential tenants waiting to move into better properties.
Rental supply hasn’t caught up with demand for years and this is only going to get bigger.
The demand target currently stands at 70mn by 2029, but who knows what effect waning construction now will have on the years to come?
We have a shortfall of £300k per annum of property investment to fill in.
Put simply - demand isn’t going anywhere.
Some experts point to the growth in GDP and lowered unemployment rates as proof that the market will continue to be viable.
They’d also mention that the amount of businesses hiring new staff has stayed relatively stable despite earlier predictions.
London remains the top destination for commercial property in the world.
About £16.2 million was invested in office buildings alone last year.
Experts point to offices as the saving grace of the sector; with tech and life sciences companies in particular offering new developments in the capital.
Some are looking to international investors to paint a picture of how the property market could stabilise long term.
There’s a large level of investment from areas like Hong Kong - which saw a 65% rise in buy to let mortgage completions from 2016-2017 and more in 2018 - and the Middle East, which invested £0.83 billion as of November last year.
This is speculated to have come from political unrest in certain territories like Hong Kong making overseas investment more attractive.
The fall in the pound has made the investment much cheaper than it would have been before - by around 10-20%.
There are also newer markets emerging, like Malaysia through the Malaysian Employees Provident Fund.
There are other, less political factors that make the UK market attractive to invest in.
- Longer lease structures: our longer lease structures compared to other countries provide much more protection long term. We have average lease structures of around 8 years which gives investors an extended monthly income that they can confidently rely on.
- Commercial Property: is getting the bigger boost, due to the low bond yields that the Bank of England have engineered, and the cut of interest rates to 0.35% last august.
This is because the property outlook of the UK has reversed from the usual status quo.
Property experts have historically looked at London to provide a sort of ‘barometer’ for what prices would do in the rest of the country.
But now the gap between London and the rest of the country is going more the other way than usual - with regional areas of the UK overtaking London in terms of house price growth.
Some believe that as London is the UK’s business hub it will be the place that suffers the most if businesses were to substantially pull out of Britain.
Others say that this is precisely the reason that London will be more resilient to any crisis and it will be the first area that politicians concentrate on when trying to mitigate any negative effects.
Regional areas have seen significant growth over the last couple of years, with houses in Scotland now taking only 42 days on average to secure an offer on Property.
Indeed, the Nationwide House Price - or NWHPI - grew regionally over the last year, with the biggest increase in growth coming from Northern Ireland at a rate of 3.1% and the North West of England at 2.9%.
Still, the more optimistic London developers focus on the fact that London will always be a capital city, and as such have massive financial and cultural value.
They’d say that any downturn is the natural result of a market which has reached saturation and that the market will fall back into place soon enough.
Having said that, the general consensus is that the market will have picked up substantially by 2021.
Indeed, there are already signs of the market ‘bottoming out’ with the fall in prices having levelled out from a fall of 0.6% to just 0.2%.
Plenty of investors are eager to find out whatever the result of leaving the EU will be - and work with whatever happens.
While a few investors might be downsizing for protection, very few are really jumping ship - with most continuing to invest in safer bets or even riskier developments with great potential ROI’s, and then return to higher levels of investment once the deal is certain and prices have risen again.
Some canny investors are even getting ahead of the game by investing while prices are still low, so that they can hop straight into profit once the market picks up, instead of dragging their developments out over years after market conditions have been confirmed.
With the housing shortfall only set to get bigger, this is certainly time to look at the long term.
Despite the ‘doom and gloom’ we might hear on the news, tenant demand and potential opportunities aren’t going anywhere.