Post-Brexit: What Next For UK Property Investment?
In light of the UK’s decision to leave the EU after the historic vote of 23rd June, there comes the inevitable question about what effect this will have on the country’s property market.
In the short term it’s worth noting that the UK’s immediate relationship with the EU remains unchanged. While there’s no definite time-frame in place, the UK continues to be a contributing member state for at least the next two years. While there will be a period of negotiation between the UK and EU to find a settlement suitable for all, there’s confidence to believe that the government and the Bank of England (BoE) will support continued investment in the market.
This is likely to mean interest rates remaining low as any raise could threaten an already fragile economic climate. BoE Governor Mark Carney has already stated that interest rates are set to remain low, while JP Morgan have suggested rates could drop to zero towards the end of the summer.
Furthermore, the volatile exchange rate we’ve seen in the post-referendum environment provides an opportunity for overseas investors seeking to capitalise on any drop in sterling by investing in competitively priced UK assets.
History shows us that residential property investment tends to be resilient to uncertain conditions, out-performing other investment sectors and asset classes. One need only look to the financial crisis of 2008 for illustration, where UK house prices remained strong in comparison to the markedly weakened FTSE All-Shares index.
During unsettled economic periods there tends to be fewer residential properties put on the market by home owners. Such a reduction in supply naturally increases demand. From an investment perspective, the low volatility and steady income stream offered by residential property represents a low-risk, reliably performing sector.
It is this continued demand which leads us to believe that the property market will continue to offer viable opportunities for investors. The UK is in the midst of a housing shortage. This situation of high demand and low supply has been the primary cause of rising prices and will continue to be the case in the mid to longer-term.
The traditional investment heartland of London may feel the effects of Brexit in the coming months given the slowing of that market over the past half-year or more. However, longer-term prospects for the capital remain positive, given the historic resilience of its market, and its place as a global investment city.
Looking beyond London towards the emerging markets such as Manchester, Birmingham and Liverpool and there is no reason to believe that Brexit will unduly affect the property market. With continued high demand for properties in these areas the referendum outcome should not have a major impact on the property landscape in these regions.
Such a landmark and divisive decision was always likely to cause a level of uncertainty and economic turbulence. However, the UK property market has been historically robust in such times, offering stable, low-risk and long-term growth in comparison to the more volatile and reactive stock-market investments. There is every reason therefore to believe that this will continue to be the case moving forward, with the prospect of continued long-term growth.