There’s no doubt that Brexit has been one of the most debated topics of late, but how much of this is just speculation? And for residential property investors, will Brexit really affect the UK’s property market or are there bigger factors at play?
How much Brexit is likely to affect different industries depends on a number of factors, such as; how much those industries rely on international import or export and how much they rely on workers from overseas.
For the UK residential property market, the biggest influencer is supply versus demand. The market relies on demand from people living in the UK and will remain largely unaffected by Brexit, with forecasts showing a growing appetite for UK residential property.
Demand for rental properties across the UK continues to grow, significantly outstripping supply. If landlords are exiting the market, meaning potentially fewer properties on the market available to let, this means even greater demand, which may push rents up. This has been indicated recently with rents in the UK reported to be up 1.7% over the past 12 months and a joint report by Reapit and Dataloft citing that lease signings up 3.5%, while supply has declined 6.9%. Not good news for the UK’s renters, but for investors still looking to gain from the property market, it’s positive – they are seeing greater potential for passive income
That isn’t to say that Brexit has no impact. It’s simply more important for investors to realise that an indirect impact is more likely, the fear-factor of what could happen which is ultimately the market takes a downward turn and prices fall.
While a drop in value is never a welcome occurrence, seasoned investors will know that if Brexit does trigger a downturn, it’s essentially a catalyst for the inevitable up-down-up cycle. Property, like any other investment, experiences shifts in the market over time, once it’s been down, it generally comes back stronger. Historically, the UK’s house prices have fluctuated over each 10 – 15 year period but almost double in value from the beginning of that period to the end.
Furthermore, if investors are slowing down their buying activity because of uncertainty over Brexit, seasoned and active investors still confident in the market will see this as an opportunity to purchase whilst others hesitate and reap the rewards when less savvy investors do rejoin the market.
Looking at the UK’s house prices since Article 50 was first triggered on March 28th 2017, on average they have risen by 8.13% (from £215,078 to £232,554), according to the latest ONS UK House Price Index report, and whilst the rate at which they’re rising may be slightly steadier than pre-Brexit, those prices are still going up.
It’s also important to consider that the effects of Brexit may not be felt until the future and beyond. Oliver Knight, an associate at Knight Frank, believes that this unclear future is having the biggest effect on holding further growth back, perhaps suggesting a surge may be around the corner:
“There is a lot of uncertainty in the market as to where we are with Brexit… That has really kept a lid on further growth. There is a wait-and-see attitude.”
Looking forward, there is no sign that people will stop investing in the UK property market. Market demand is continuing to skyrocket in certain areas, heavily outweighing the available supply. This is coupled with the rising popularity of city centre living, especially in affordable regional cores like Birmingham that are pushing massive redevelopment.
Property also remains a relatively secure investment with stable returns. The investment community is clearly positive about future prospects in the market, even with the uncertainty that the change brings.
So back to the original question, does Brexit pose as much of a threat to the UK’s residential property market as we think? The answer is no. There are quite simply bigger factors at play, which all come down to supply and demand.