Brexit – What’s occurring?

‘What a palaver’…are the words being used by some when talking about the UK’s departure from the EU.

In recent weeks, the UK government has had a complete overhaul with a new Prime Minister in the form of Boris Johnson, former home secretary Sajid Javid being instilled as the new Chancellor, ardent Brexiteer Priti Patel as Home Secretary, and former lawyer Dominic Raab as Foreign Secretary to name a few.

Boris Johnson has remained firm that the UK will leave the EU with or without a deal on October 31st 2019. The EU remains firm that the deal on the table is the only deal on offer otherwise the UK must choose to leave without a deal.

What will happen now?

Well in short…nobody really knows! There are a lot of experts claiming X will happen or Y will happen but the truth is that nobody has a crystal ball. A lot of people are comparing it to the global financial crisis of 2008 but the reality is this is entirely different. It isn’t coming out of the blue, it isn’t on a global scale, and also we (investors), the government, and banks learned a valuable lesson from 2008 that will never be repeated.

Let’s look at the various scenarios…

The UK leaves with a deal

This will be the deal negotiated by Theresa May a few months back. This was the deal that features the contentious ‘back-stop’ arrangement that many are against. The issue many see with this deal is that the UK (in particular Northern Ireland) will remain tied to many EU rules but without a seat at the table to change these rules.

Will Bo-Jo manage to renegotiate this? We shall see.

The UK leaves with no deal

This means that the UK immediately cuts ties with the EU on October 31st. The UK would then revert automatically to WTO (World Trade Organization) and would face the same customs checks and tariffs as other countries outside of the EU and there would be no ‘transition’ period. Experts believe this would lead to a short-term price increase on goods on both sides of the Channel.

Brexit gets cancelled/Another referendum

This is unlikely at this stage but there could be a vote of no-confidence called in Parliament against Boris Johnson and if successful, an alternative government could be formed through a General Election, then either another referendum called or Brexit cancelled altogether.

More on the potential Brexit outcomes here.

So what does this mean for the property market?

Well since Brexit was announced over 3 years ago (yes it feels like forever!), the UK property market has remained buoyant. There are a handful of areas that have felt the pinch (prime Central London being one of them…but this isn’t necessarily due to Brexit), but on the whole, the UK market has continued to rise. Areas like Manchester and Birmingham have seen growth in excess of 16% since the referendum, and continue to rise, with projections for both cities over the next 5 years still well into double figures.

There are a few factors that affect property prices so we’ve outlined them below so we can assess what impact Brexit could have (if any) on property prices and rents.

Supply and Demand

Fundamentally the UK is hugely undersupplied when it comes to property. Recent figures indicate the shortage is somewhere in the region of 4 million, and around 300,000 new homes need to be built every year for the next 13 years in order to meet the current demand. The UK builds on average 150,000-200,000 new homes in a good year. Still well short of the 300,000 target. Simple economics suggest that when demand outstrips supply the price increases. Property is very similar, although there has to be an affordability ceiling, which is what we have seen in prime Central London.

The same can be said for the rental market. More and more people are choosing to rent rather than buy due to the transient nature of employment and companies relocating employees more frequently than perhaps 20 or 30 years ago. Coupled with the fact that young renters can’t afford the deposits required by the banks and as such are likely to become life long renters.

Interest Rates

The Bank of England has kept interest rates low for over a decade now, and some reports are hinting at a possible rate decrease if a No Deal Brexit were to occur. This poses a huge opportunity for investors to cash in on cheap finance. Investors who take out mortgages and lock in the low rate interest for 3-5 years could benefit hugely and achieve attractive returns for a longer period.

Currency

The Pound Sterling is at the lowest rate for over 2 years, and compared to the pre-Brexit announcement rate, investors from outside of the UK investing in currencies like USD or AED are getting around 15% more for their money.

Many investors have seen what the currency is doing and are capitalizing on this, with international buyers on the rise in UK cities like London, Manchester and Birmingham. 2018 saw record levels of investment from overseas investors into London with over £3.6bn coming from Asian investors alone.

At some point in the future, the pound will rise again, and investors see this as a free and easy way to make money. Their property value might only rise by 4% per year but if the value of the currency strengthens by 15% in addition…they are making a healthy return on their investment.

As we said above, there’s no crystal ball and no way of knowing exactly what will happen, but based on what happened in the past and what we know now, it seems that the UK property market will continue as normal and things will remain largely unchanged. There are still opportunities out there, people still need a roof over their head, businesses are still investing billions of pounds into the UK each month and the economy still remains the 5th largest in the world…not bad for a tiny island.

If you’d like to talk more about Brexit and the opportunities in the UK please feel free to get in touch!

Whilst a lot of investors will sit on the fence, there are some out there snapping up the opportunities. In 2008-2012 there were more millionaires made in the property market than ever before but there could have been a lot more had others gotten off the fence…

”Be fearful when others are greedy and greedy when others are fearful.”

Warren Buffett.

Get in Touch

Interested in off-plan property investment? talk with us directly, you can call us on +44 (0) 2039507939 or send us an email at info@thirlmeredeacon.com. If this is your first time landing on Thirlmere Deacon Property Investments, I encourage you to visit our Buy-to-let page to find out more about the current opportunities we have on offer.

 

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