Brexit: What next for Property?
The Prime Minister has now started to set out how the UK will handle the process of leaving the EU and parliament has now voted to trigger Article 50. We have repeatedly heard that “Brexit means Brexit”, and Theresa May’s recent announcements show that she really does mean that.
The ramifications in terms of trade, currency and migration are huge, regardless of whether you perceive the effect as positive or prejudicial. But what impact might Brexit have on the property world, particularly here in London?
The immediate impact over the summer of 2016 was that the volume of house sales and purchases immediately dropped. This impact was felt particularly in the capital. The huge urgency to complete transactions before rates of Stamp Duty Land Tax increased in March 2016 was a stark contrast to the nervousness surrounding the housing market following the referendum result in June.
Sellers hesitated to put their homes in the market fearing a rapid price crash, and even the more conservative purchasers began to hesitate in making the decision to take on a potential life to change mortgage. Fortunately (for existing home owners at least), the simultaneous decrease in both supply and demand has meant that in reality there has been very little downward pressure on prices.
In fact, the figures produced by the major lenders do suggest that house prices continue their relentless march upwards, albeit at a much slower rate than before. Can this really be put down to Brexit, or is this the long-awaited result of year on year double-digit house price inflation? In truth, it is probably a bit of both (with a bit of post Stamp Duty Land Tax adjustment thrown in for good measure).
Whilst there will always be nervousness about taking on a new expensive mortgage, the fact remains that mortgages are currently as affordable as they have ever been. Unless you are working in the City for a bank that may or may not be relocating to Frankfurt or Paris, surely now is the time to be looking at taking on a loan with the base rate being at a record low? Our own experience is that this ‘ordinary’ end of the housing spectrum in London is faring better than the higher value sector.
Theresa May’s very clear message about completely leaving the single market and all that entails will not be universally popular, but it does have the potential to mean that the outcome of the Article 50 ‘negotiations’ is easier to forecast. This will inevitably help bolster the pound which, ironically, may well have a more negative effect particularly on the prime London market where Sterling’s record lows have made it cheaper for foreign investment.
Almost inevitably, commentary about the post-Brexit housing market is going to be dominated by analysis and predictions regarding prices, but it would be wrong to ignore the wider picture as well.
The availability of social housing is a huge concern for a large part of the population. Based on the principle of free movement and the entitlement of EU nationals to enjoy equal treatment with UK nationals in assessing social advantages, a proportion of the declining social housing stock is undoubtedly occupied by families who may no longer qualify for social housing in the post-Brexit era. Changes to the availability of housing benefit are likely to further influence of the mix and availability of the public rented sector.
The private rented sector may find itself even more exposed to a fall in demand, particularly around Docklands and other areas, in the event that banks do start to move their operations away from London. That said, whilst much has been written about it there is no immediate sign of a mass exodus from the square mile or from Docklands. First-time buyers will be encouraged by the news that disparity between rent and the cost of owning your own home is actually beginning to narrow as rents remain almost static in the capital.
So whilst the future for the prime London market continues to look less robust than previous years, the ‘regular’ market seems to be well on the road to recovering from its 2016 blip (which blip may well have been caused or partially caused by factors completely unrelated to Brexit). Demand for rented property remains strong, but penal Stamp Duty Land Tax rates make it difficult to foresee any increases in supply which may ultimately lead to rents beginning to increase again. Again, this unpredictability has as much to do with taxation policy as it does Brexit.
Until the UK does leave the EU for good the truth is that we do know little about what might happen, and if Brexit does mean Brexit then there may be little that the UK Government can do to regulate the housing market. What is, however, entirely within the control of the policymakers would be to put a stop to using property taxation as a knee-jerk way of regulating the economy. If stability is a goal, property taxes may have a far larger part to play than the impact of Brexit.
The original of this article first appeared in Wimbledon Time and Leisure Magazine in February 2017.