Tag Archives: Impact of Brexit on Property Prices

Will Brexit affect my rent or the value of my house?

The Brexit debate rages on and no issue is closer to UK voters hearts than property equity.  For a nation traditionally of home owners and lately of generation rent this is a hugely passionate issue for all.  Here we address the issues for both owners and renters if we Brexit or Bremain-

  1. House Prices

Demand for houses in the UK is driven by influencing factors – foreign investment, population growth, the availability of credit and consumer appetite for debt.  Below is the ONS data for property sales with a spike of sales in March – the rush pre the BTL tax rate changes in the budget – and the dramatic fall in April.

 

Total UK Residential Property Transactions Chart
Total UK Residential Property Transactions Chart

2. Foreign Investment

49% of London residential property buyers are from outside the UK but only 16.5% are from EU states (Knight Frank).  Indeed the EU citizen’s who rushed to buy in London all did so in order move their money from their own relatively unstable countries to a UK safe haven, thus driving the London property market.  The fact is anyone in the EU who wanted to and could move their cash from a risky economy to the UK and convert it into bricks and mortar has already done so.  A foreign national capable of buying in London is unlikely to be  affected by the Brexit issue and is more likely to be put off by the enormous price tags of London real estate.  The two graphs below right illustrate the progressive slowing down of the London prime housing market over the last 24 months and therefore could not have been caused by Brexit speculation.

Property Buyers Chart
Property Buyers Chart
Price Growth and Demand Charts
Price Growth and Demand Charts

Out with prime me London UK house prices have shown strong growth, largely driven by the lack of supply and population growth.  The inability of supply to catch up with demand will continue whether the UK Brexits or Bremains.  EU citizens working in the UK are contributing to the economy and must be given the right to continue to work in the UK for our economy to grow.  Will they leave the UK if we Brexit? Absolutely not, they came to the UK to find better jobs with better pay.  So what about the 1.2 M UK citizens working in the EU?  The EU could expel them, which will only increase the demand for homes in the UK.  Basically, Brexit or Bremain, house prices and rents outwith London prime will continue to rise.

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3. Availability of Credit 

As the Bank of England base rate remains low lenders have been able to offer very competitive interest rates on mortgages.  According to the Bank of England the number of mortgages that have been approved has been steadily growing since 2009 (below left).  Even though buyers have not seen wage increases in the last decade disposable income has remained stable meaning greater price to earnings ratios as prices rise (below right).  So, credit is freely available, even for London prime purchases.

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4. Appetite for Debt

Elections have traditionally had an effect on the volume of house sales and therefore also the price achieved.  Pre election jitters have traditionally made home buyers nervous and post election certainty leads to a boost in home purchases.  According the Jefferies Bank data in the two charts below we can expect to a recovery in house sales within 2 months of the referendum. It’s not the Brexit that is affecting house sales, it’s the debate and the referendum surrounding it, catalysing the fall in sales in April.  With Buy-to-Let (BTL) comprising approximately 50% of the house purchases in the UK the post Brexit referendum recovery will be hindered as investors appetite for property is diminished by the new stamp duty rates for BTL.

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5. Rental Costs

Homelet (the rental credit and reference check agency) average UK rental price index has reached a plateau (below).  While that may seem like good news on the surface for generation rent but the data includes London, which boosts and distorts the average.  With house prices at their peak in London the drive for increasing rent is diminished.  Outwith the London property scene rents are rising as house prices rise, the population grows and London renters escape the city to reduce their bills.  Brexit or Bremain this situation is not going to change.

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