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.
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.
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 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.
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.