To Brexit or to Bremain, that is the big question on everyone’s lips at the moment. But what will leaving the EU mean for the UK’s property market?
What is the EU referendum?
The UK is a part of the European Union (EU) which is an economic and political partnership between 28 European countries. 19 of these countries share the same currency – the euro – and it has its own parliament which can set rules on a selection of areas.
Watch video about how the European Union works.
The EU referendum will take place in the UK on June 23rd 2016. On the polling day, registered UK voters will be able vote on whether the country should stay in the EU or leave.
With both campaigns lobbying for votes, Experience Invest takes a look at what leaving the EU could mean for the UK’s property market.
It is no secret that property prices in the UK have steadily increased since the economic downturn.
In fact, according to Nationwide, average property prices in the UK reached a new high of £202,436 in April 2016 and despite a general cooling in the market after the Q1 rush to beat buy-to-let stamp duty tax increases, prices still rose by a notable 4.9% year-on-year.
HM Revenue and Customs reported that the number of UK property transactions were down by 45% in April however, this is to be expected in light of recent tax changes and the political uncertainty surrounding the EU referendum.
Doug Crawford, chief executive of My Home Move, told City A.M.: "Transaction figures are likely to be subdued over the next few months as a result of the rush on buy to let purchases in the first quarter and caution caused by the looming referendum.”
If we leave...
The Chancellor or the Exchequer, George Osborne, has said that UK house prices could fall between 10% and 18% if the country leaves the European Union.
Osborne said a vote to leave would cause an ‘immediate economic shock’ which could hold back the growth of the property market.
Potentially good news for those who are struggling to get onto the UK property ladder, a fall in prices could level out the playing field and make the market more affordable for some.
However, it has been argued that the Chancellor’s statics are misleading.
If we stay...
The experts at Property Wire have highlighted that Osborne’s figures are based on any fall in prices when ‘compared with where they would have been if there was no vote for Brexit.’
The news source is quick to point out that the independent Office for Budget Responsibility predicts a rise of 9.4% over the next two years and a further 5% over the following year.‘Most home owners have seen the price of their home rise by 9% in the last 12 months so the government forecast actually suggests that homes would be worth between 0.6% and 8.6% less in cash terms than they are now,’ Property Wire concludes.
Speaking about the property market and leaving the EU, equity analyst at the investment manager Brewin Dolphin, Stephen Williams, told the IBTimes UK: "As far as domestic supply and demand are concerned, I'd say there aren't that many major risks, other than if interest rates go up faster, or more than currently expected.
"We've still got this demand and supply imbalance and I think the demand is still there, supply is still limited. From a domestic point of view, I don't think Brexit is going to have a significant impact at all."
London house prices
London has been considered as a ‘safe haven’ for property investment for many years and with the price per square metre rising by over 400% in the last 20 years (Halifax), it’s easy to see why many investors have invested in property in the city.
The capital’s sought-after status could be in jeopardy if the UK leaves the EU.
As capital is able to move relatively freely in the EU, London is favoured by many European Citizens as a ‘safe place’ to invest their money. If the UK decides to leave the EU, investors might decide to look elsewhere for investment property which could mean that London will lose its ‘safe haven’ crown. However, it is not clear what role the EU has played in attracting investors into London.
London property has always been seen as somewhat of a commodity and, despite fears, a weaker pound could lead to an increase in transactions from overseas and European investors who wish to snap up a London property at a relatively cheap price.
Those who already own a property in London potentially will see no significant decline in values if the UK leaves the EU.
Potential buyers who are currently priced out of the market may be disappointed by the resilience of London’s property market.
Watch video about the UK property market as a safe haven.
One big question experts have been asking is: “Will overseas investors be put off by property investment in the UK without the safety net of the European Union?”
High end and luxury property in London relies heavily on overseas investment. According to the experts at property firm, Knight Frank, 49% of central London property investors are from overseas and 15% of London’s prime central market is owned by European citizens (Savills).
Since the start of 2016, international investors have adopted a cautious approach towards London’s property market. Research conducted by Hamptons International has shown that the non-UK buyers in London dropped from 32% to 25% in Q1 2016. Read more...
The uncertainty surrounding the referendum has cooled investment in London’s prime market however, that isn’t the case for the whole of the UK.
Cities such as Manchester, Liverpool, Birmingham and Leeds have all witnessed a rise in the amount of money invested by overseas investors.
Changes to stamp duty taxes have also forced many investors (domestic and international) to look further afield and, with properties offering a lower entry level and higher yields, it’s understandable that overseas investors are turning their back on London in a bid to secure higher returns.
Read more about northern property hotspots for 2016.
The National Association of Estate Agents (NAEA) has predicted that landlords could see a decrease in rents if voters decide to leave the EU.
The NAEA report stated: “Lower immigration would mean less people looking for accommodation which would lessen the demand and, potentially, the upward pressures on housing prices, especially in those regions popular with EU migrants.
“Lower immigration would also impact rental prices. UK residents born in other EU countries are far more likely to be private renters. Therefore if fewer EU nationals move to the UK in the long term there may be a noticeable impact on demand levels.”
Leaving the EU could be good news for ‘generation rent if rental prices decline however, if landlords are forced to sell up, the supply of rental property could dwindle. In this scenario, the UK’s private rental sector would remain costly for renters.
UK landlords may also feel the pinch if property prices decline at the rate in which George Osborne has predicted.
Some landlords may shift their attention towards asset classes like student accommodation or care homes to compensate for changes in the UK’s real estate market.
The International Monetary Fund has warned that interest rates will need to rise if the UK leaves the EU.
If mortgage interest rates do rise, it may offset any potential benefit of any price decreases. After all, first time buyers will not be in a better position if they cannot secure a mortgage.
Many experts have suggested that interest rates will have to rise if the UK leaves the EU however, this may not be the case.
A recent Reuters poll has shown that 17 out of 26 economists believe that the Bank of England would cut interest rates if the UK leaves.
“If the UK votes to leave the EU, then the BoE is likely to cut interest rates to 0.25 percent, but also restart quantitative easing,” said Azad Zangana, London-based senior economist at asset management firm Schroders.
The construction industry
Experience Invest recently explained the results of a survey conducted by Building Magazine which showed that industry professionals are concerned that labour costs and materials could rise if investment levels drop in light of a UK exit from the EU.
The government has been incredibly vocal about its plans to deliver new housing to ease the gap between supply and demand yet, if the UK leaves the EU, these plans could be jeopardised.
The cost of building property could increase if greater restrictions on foreign workers in the UK are applied. A shortage of construction workers is another problem the government may face if the UK leaves the EU.
In contrast, the majority of respondents surveyed by Building Magazine believe that the UK’s construction industry will not be negatively affected if the outcome of the vote is to stay in the EU.
What could leaving the EU mean for expats?
The Telegraph recently reported that over 1.3 million Britons live in Europe.
Britain’s expat community has voiced concerns that they could become ‘illegal immigrants overnight’ if the UK leaves the EU yet there is no significant evidence that this would be the case. In fact, expats will be covered by substantial legal protections and individual ‘acquired rights’ under international law.
In the case of property ownership, each country will have to abide by property laws which are in place which will mean that an individual’s property rights will be protected.
Value of sterling
The value of sterling could also be effected if Brits decide to leave the EU.
Citi Bank and Goldman Sachs have both warned that the value of sterling could decline by a fifth if investors shy away from the pound. A decline in the value of the pound many not necessarily have a negative effect on London’s property market.
When the value of the pound heavily plummeted a few years ago during the economic downturn, overseas investors were quick to snap up properties in the London at relatively low prices.
Brexit or Bremain?
Whatever happens after on June 23rd, it is clear that there is no real certainty about how the UK’s real estate market will respond to the result.
Until the outcome of the referendum is clear landlords, investors, renters and house buyers will no doubt approach the market with an air of caution.
Follow the link for more information about what the experts of Experience Invest think about property and the UK referendum.
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