How the Referendum might affect UK Property
The EU referendum has been the centre of attention across most industries for the last month, and property is no exception.
Shortly before the pivotal vote on the 23rd June, the NAEA, ARLA and CEBR have released prospective house price figures in the event of both a Remain and Leave vote.
The Centre for Economics and Business Research (CEBR) suggested that a Brexit could wipe as much as £26.5bn off the value of UK property by 2018.
The CEBR suggested that rents would not be significantly impacted by a Brexit in the first two to three years because so many people are renting nowadays.
However, rents could fall as the number of EU nationals left the UK and demand fell.
David Cox is the managing director of the Association of Residential Letting Agents (ARLA). He has taken those assumptions one step further and concluded that a fall in rents would cause a further increase in rents down the line.
He said: ‘If demand eases to such an extent that landlords cannot recuperate costs, we’ll likely see a mass exit from the market. This will severely lower supply and increase demand back to square one.’
Vote Leave campaigners have claimed that renters and first-time buyers would benefit from a Brexit, though the figures below aren’t as reassuring as such a statement would imply.
Assuming the speculations are accurate, house prices in the event of Britain leaving the EU will still increase, just at a slightly lower rate; an increase of over £10,000 by 2017 and a further £12,000 by 2018.
The referendum has persuaded first-time buyers that a vote to Leave will make their prospective property significantly cheaper due to lower demand and a predicted drop in house prices – according to Halifax and the Royal Institute of Chartered Surveyors, that is.
However, considering the current difficulty first-time buyers face to save up for a deposit, can they realistically save for the extra £23,000 needed to afford a house in two years’ time? Consider that prices would be just an extra £2,000 if we voted to Remain, and the reality becomes slightly more complicated.
If the predicted price fall does happen, the natural price increase – regardless of the referendum’s result – could soon counteract the fall and then continue as it has been in recent months and years.
This effect would be felt more closely and deeply in London, where prices remain volatile. The increases from a Remain vote will occur much quicker than across the rest of the UK as the foreign investors who are shying away from London property would flood back.
Prospective buyers in the capital will definitely take much more notice of the price changes in each different scenario – £58,000 over three years in the event of a Brexit, and just over £63,000 if we remain.
Assume also that Brexit prices do fall relative to Remain prices. How long would the Brexit drag them down? A year? Two? Foreign investment could decline, certainly in the capital, but for every EU national no longer interested in buying, a non-EU national or Brit would compete for that property. The most probable outcome will be a short-term dip while the Brexit pushes through, and then the longer-term supply crisis will show its face again.
Let us not forget, either, that the supply crisis will only be worsened in the event of a Brexit. 5% of the British construction industry consists of EU nationals who could be jeopardized by a Leave Vote. House building could potentially slow.
Mark Hayward is the managing director at the National Association of Estate Agents (NAEA). He said: ‘We simply wouldn’t have the resource to put the bricks and mortar together. [A Brexit] has the potential to have a very damaging effect on the future housing market.’
What about finance? Are interest rates subject to change after the referendum?
Because interest rates have been low for so long, mortgages have become attractive, though the surging price recovery since the recession has made affordability itself an issue. The Monetary Policy Committee has deferred rate increases for over a year and will probably wait until at least 2017 to increase rates.
Given the current supply issues and the increased mortgage repayments that come with higher interest rates, prospective home-buyers could be priced out of the market sooner than they are now.
An interest rate increase is less likely to occur in the event of a Brexit, but the MPC is still going to hold off while the economy recovers from the inevitable shift caused by the referendum.
Thus, the property industry is proving hard to categorise and is still being affected by factors even more influential than the referendum, namely the supply crisis and booming prices.
Landlords could perhaps favour a Remain vote – immigration keeps rent demands high and increases the number of available tenants to choose from. First-time buyers and younger generations could say Leave – they want prices as low as possible when they make their step onto the property ladder. Tenants could also vote Leave – fewer people to compete for the already limited number of rental properties. Foreign investors could prefer a Stay vote, as could developers, while current homeowners could vote as they please – though those looking for equity in their property would probably vote Stay.