In the lead-up to the UK leaving the European Union, investors are looking at an interesting and challenging – yet deeply uncertain – future for the UK’s commercial property market.
With Article 50 having been officially triggered, investors are now wondering more than ever what kind of effect it is going to have upon the property market. Details about our future relationship with Europe and the European Union remain hazy, and given the time it took to finally trigger Article 50, it seems that there are no positive signs that the process is going speed up in the immediate future.
Let’s take a closer look at what the future could hold for commercial property investors.
Brexit-related factors affecting the commercial property market:
Uncertainty
In the week following the triggering of Article 50, which is the first concrete step towards Britain leaving the EU, Google searches following the words “How will Brexit affect…” saw “house prices” and “mortgages” being searched more frequently than similarly prominent issues such as “immigration” and “the economy”. It is fair to say that concerns about property dominated the online questions being posed to Google.
It is certainly possible that the consequences of the UK leaving the European Union could be monumental for property investors. If immigration slows, we could see over time less demand for new rentals. If the UK’s relationship with Europe continues to remain uncertain as time moves forwards, the lack of definite answers could impact the way in which investors, private buyers and renters make their financial decisions. The housing market can only work effectively if there is stability, or at least some level of certainty about its likely future.
While there are as usual near-countless factors affecting the present housing market situation, new research from HomeOwners Alliance and BLP Insurance revealed that over 1 million UK adults have put plans to purchase a new property on hold due to the vote to leave the EU. This discovery shows a clear reluctance in many residents to invest during such uncertain economic times, and if the uncertainty continues it could in fact mean good news for the buy-to-let property industry. 1 million fewer couples purchasing properties is likely to mean 2 million tenants who will instead continue to rent across the country.
Brexit-related factors affecting the commercial property market:
Inflation, interest rates and the job market
A reliably healthy commercial property market relies predominantly on the health of the UK economy, which is notoriously difficult to predict. Pundits had been predicting wholesale doom and gloom in the wake of the referendum results, but the weakening of the pound has levelled out again following its initial plunge the week following. Whether this will maintain will depend on the government’s negotiations with the EU.
If the pound weakens further, or if inflation accelerates and the interest soar, house prices are unlikely to rise. The opposite is also true, and if negotiations prove effective then house prices could rise more quickly than initially expected.
We all know that the demand for new homes is not being met by those being constructed by developers. This means that not only is the number of homes on the market at a record low, but the property market itself as well as UK-based property transaction numbers are continuing to slow down.
The triggering of Article 50 coincides with this general slowdown in the housing market, particularly in the south and in London. Such collective uncertainty for the future could chokes the housing supply and generate pent-up demand.
Savills has predicted that the number of homes sold next year will fall by 16% compared to this year – however, they also predict that in five years, house prices across the UK will rise, which is better news looking forwards.
Brexit-related factors affecting the commercial property market:
Immigration
Another important factor to consider is the future of immigration in the UK. In the build-up to the referendum there was a record number of Eastern European immigrants coming to the UK, but then a drop directly after. We personally saw a rise in people from other European countries renting from us, most likely with the aim of trying to beat the Brexit deadline, but now that Article 50 has been triggered we will be interested to see what comes next.
Theresa May has claimed that there will be a points-based system for immigration after the UK finally leaves the EU. This would almost certainly see far fewer immigrants coming to the UK and therefore a reduction of pressure on the job market. This would likely see the housing demand dropping more closely in line with how many properties are available to rent and buy, and a potential slowing of the rise in house prices.
What could be done to help?
One element of the property market that the government could alter, which would potentially create a healthier buyer’s market, is the stratospheric stamp duty tax. Stamp duty has for a while been painfully high, acting as a drag on the market, so any kind of reduction there could be hugely beneficial to UK property investors and free up more possibilities for lucrative ventures.
Tax duty on properties worth more than £925,000 saw a large hike in December 2014, leading to fewer homes being sold. This was an issue affecting the market before the results of the referendum were even announced, but any positive changes such as this would lighten the pressure that may arise from Brexit.
Moving forwards
It is vital to keep in mind that Brexit is a long-term play, and for all the claims about Theresa May initiating a quick “hard Brexit”, it could conceivably be years before Britain finally untangles itself entirely.
However, the UK economy itself remains one of the fastest growing economies in the world today. It is in excellent health and we maintain that if you are savvy and put in your due diligence, Britain continues to be a great place to invest. An unpredictable economy does not always mean an unhealthy one, and will often prove to be ripe with opportunities for those brave enough and disruptive enough to take them.
What do you think Brexit will do to affect the job market? Have you already seen effects taking place? Will Brexit eventually be a good thing for the property market?
We look forward to seeing your comments!
If you would like to see more of our predictions and insights into 2017, watch this video or read this blog here.
If you would just like to improve your understanding of how expert property investors make their money from the commercial property market – regardless of outside factors, such as Brexit – find our book of property secrets here.
