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The Brexit Effect

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The Brexit Effect

At last the wait is over and the results are in. The UK has voted out of the European Union (EU). So what does this mean for the London lettings market?

We are questionably with uncertainty. However, there is a great deal of optimism surrounding the decision to leave the EU (and with respect to the London property market).

It is possible that Brexit could lead to decreased demand levels with people delaying to act on property because of their uncertainty in the market. This lack of activity could in turn create a drop in property prices [2]. Letting agents predict that housing prices in London would be worth £7,500 less in 2018 as a reaction of leaving the EU, which is good news for those looking for a buy-to-let mortgage. The National Association of Estate Agents and the Association of Residential Lettings Agency suggest that voting out “could provide first-time buyers with breathing space as a demand for housing eases off,” giving those struggling to enter the market a better chance. The International Monetary Fund goes along with this report stating that Brexit will lead to “sharp falls” in house prices and stock markets [1].

On the other hand, some predictions surround the lack of effect Brexit will have on the market. According to Stephen Williams, an equity analyst at the investment manager Brewin Dolphin to IBTimes UK states: “As far as domestic supply and demand are concerned, I’d say there aren’t that many major risks, other than if interest rates go up faster, or more than currently expected. We’ve still got this demand and supply imbalance, and I think the demand is still there, supply is still limited. From a domestic point of view, I don’t think Brexit is going to have a significant impact at all. The market is probably overheating anyway at the moment… I don’t think the UK’s safe haven status would be impacted too much by Brexit” [1]. In addition, the Association of Residential Letting Agents says that demand will most definitely fall in the rental market but prices will remain the same [2].

In addition to possibly lower property values, Brexit is bringing attractive investment opportunities to the property market. Exiting the EU will reignite interest from overseas buyers, who would see greater value, or “more bang for their buck,” in the London market if the pound continues to weaken [3]. When the sterling plummeted during the financial crisis of 2008 the London market boomed because of the flood of foreign investors buying up prime properties at relatively low prices [2].

Russell Quirk, CEO of eMoov, exemplifies the feeling of optimism shared by many in the lettings market with this quote: “The London market, as always, is likely to remain in its own impervious bubble despite the choice for Britain to leave. We’ve seen a few market wobbles since the results were announced, but they already seem to be starting to stabilise” [2]. The resiliency of the London real estate market cannot be denied and therefore will bounce back from Brexit.

[1] https://www.rentsquare.io/2016/06/21/eu-referendum-how-would-brexit-effect-the-uk-property-and-rental-market/

[2] http://www.homesandproperty.co.uk/property-news/brexit-five-ways-a-leave-vote-would-hit-londons-property-market-a102271.html
[3] http://www.kayeandcarey.co.uk/news/2016/06/24/not-the-result-we-were-expecting-but-at-last-it’s-over/

30/06/16