23rd May 2016
With less than a month to go until the vote on whether to stay or leave the EU, I have had a look through the multitude of articles looking at the possible affects leaving the EU would have on the property market.
The first place to start is to look at what the government is saying will happen if we leave the EU. The Chancellor of the Exchequer, George Osborne, has come out today saying that house values in the UK could fall by anywhere between 10% and 18% due to the economic shock the UK could experience from leaving the European Union. Speaking at the G7 finance minister’ meeting in Sendai, Japan, George Osborne revealed that the forthcoming Treasury analysis on the short term economic affect will have wide a ranging negative impact on business and families alike.
The analysis says that by 2018, Britain’s housing market will be reduced by between 10% and 18% compared to the expectation of remaining in the EU. This is a big reduction in the expected growth.
The wider effects on the property market come down to the inevitable uncertainty surrounding the financial market and the instability that this could experience. The International Monetary Fund, for example, are suggesting that interest rates will have to rise to cover the financial institutions in case anything does go awry.
‘If we leave the European Union there will be an immediate economic shock that will hit financial markets. People will not know what the future looks like. And in the long term the country and the people in the country are going to be poorer,’ Osborne said.
‘That affects the value of people’s homes and the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10% and up to 18%. And at the same time first time buyers are hit because mortgage rates go up, and mortgages become more difficult to get. So it’s a lose-lose situation,’ he pointed out.
‘We all want affordable homes, and the way you get affordable homes is by building more houses. You don’t get affordable homes by wrecking the British economy. And of course if we left the EU, mortgage rates would go up, it would become more difficult to get mortgages so they’d be hit as well,’ he added.
Opponents of the Treasury analysis seem likely to point out that the fall in prices is only compared with where they would have been if there was no vote about leaving the EU. 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. Taking into account that most home owners are seeing their properties worth approximately 9% more than they were worth 12 months ago, the government forecast really suggests that homes would be worth between 0.6% and 8.6% less than they currently are.
If we look at how normal estate agents are seeing the property market, many are reporting a reduction in sales and a wait and see attitude about whether it is worth buying property now or seeing what changes will come in following the vote on the 23rd June. Surprisingly, investors in commercial property are requesting their lawyers to insert Brexit clauses to contracts allowing them to pull out of purchases if the outcome is not favourable.
The potential exit of from the EU is also affecting the values of farmland with the values 3% in the first quarter of 2016. This is the largest quarterly drop since Q4 2016 when the credit crunch took hold and we plunged into the banking crisis. Compared to the same period in 2015, listings of farmland are also down around 25% in terms of acreage. With an expected 60% of farmers looking to leave the EU the affect it could have on the price of farmland is likely to drive the direction of their vote come referendum day.
But what about the rental market. Everyone is well aware that young people in the UK are known as “generation rent” with the house prices making it ever increasingly difficult to get onto the property ladder with more people having to use money from their parents for the deposit. The media is a little uncertain about the effect that the Brexit would have on the rental market. It appears that in the main however that the expectation is that rents are going to reduce due to a decrease in demand. With less immigration from the other EU member states demand for rental properties, particularly in a city such as London, means landlords are going to have to reduce rents in order to keep their properties let.
This news makes it even more imperative that you as an investor are buying the right properties. With the level of uncertainty in the market at the moment, the only way you can be certain of your future investments is to use a company such as Choices Investments to work with. With our expertise from the last 16 years of pure investments and 26 years of estate and letting agency, we will sit down with you and review your current portfolio as well as looking at which properties and areas to invest your money in. For more information or to arrange a time to come and see us, please give us a call on 01342 840050. We would also like your comments on the Brexit below to see how you as investors are feeling the market is going to change with the upcoming vote.
Written by Tom Stedman, Senior Property Analyst.
All views outlined in this report are my own and do not necessarily represent those of Choices Investments.