Brexit – what could it mean for the property market?
12th July 2016
Since the news broke a couple of weeks ago, understandably we have been contacted by many clients – some curious and some concerned – as to how the result of the EU referendum may affect both their property or portfolio, and also the industry in general.
Many commentators on the market and the media have given their speculative views on what it might mean for the property market, ranging from positive to a complete calamity and 20% being wiped off the value of properties in the next 12 months. We’ve considered all of these views and opinions and taken some time to consider our position and outlook.
Firstly, taking a look at the student market, we are of the view that it is hard to predict what might happen, but certainly expect there to be some sort of knock on effect. About 30% of our student tenants are from overseas and around half of those are from within the EU, who benefit from lower fees compared to those coming from outside the EU. If this benefit was taken away, understandably studying in the UK may become less affordable for those individuals. We also expect that UK students of the future may not necessarily drop in numbers, but may choose places of education closer to home, as parents look to preserve and safeguard their finances. Given that the average rent for a student of Brighton is over £5,500 per year, it is a considerable saving to remain living at home.
That said, in the last recession, Brighton & Hove was resilient to many of the effects felt by the majority of the country and in many ways bucked the trend, with stable performance in the housing market (both sales and rental); and even growth in areas like tourism. We therefore remain optimistic about the student private sector market for the present and future.
What will become more important if there is a reduction in the number of students choosing either of our universities, is the quality and presentation of accommodation in the private sector. Some landlords are already taking steps to upgrade their accommodation and ensure that prospective tenants are attracted to their property as opposed to choosing to secure a home purely on the basis of a lack of choice.
The non-student market is equally difficult to predict, given that we do not have a full understanding of the ramifications of leaving the EU, or a clear path from our government. What you can expect however is that tenants are likely to ‘sit tight’ in their current accommodation, to save on the cost of moving and to ensure financial stability. Renters are less likely to ‘splash out’ on an upgrade to a larger, smarter apartment for example and more likely to stay put. With uncertainty over jobs, savings, disposable income and the cost of living, it is understandable. For landlords, this means the prospect of longer tenancies and reduced void periods, which can only be a positive thing. On the flipside however, when a tenant leaves, it will be important to remain realistic about asking rents and also to ensure the property is suitably presented for the market it is intended.
Will the house market crash? It’s a possibility, but so is Donald Trump becoming the next president! Most analysts and industry experts have forecast a dip in asking prices, but whether that is a price correction which was forecast before Brexit happened, or a longer term and deeper drop, only time will tell. Ultimately the London market is the main influence on this. With sterling at an all-time low (for now at least), there is a suggestion this could actually push prices up as overseas investors look to acquire properties whilst conversion rates are in their favour. As stated earlier, Brighton & Hove remained in the most part resilient to the last recession, and whilst house prices did flat line for a couple of years, only those who bought at the peak of the market and perhaps overpaid for properties found themselves in negative equity.
The overriding fact is that the value of your property only matters if you are selling or re-mortgaging. Longer term, property will always appreciate in value and should be considered a long term investment in the buy-to-let industry. In 10-15 years’ time, it is extremely improbable that a property would be worth less than it is today, or in a couple of years’ time if there is a drop in value. For this reason, now is still a good time to invest in property and will remain so for the foreseeable future. Lenders may tighten their criteria, costs may increase, but certainly in Brighton & Hove, you will always see a good return in the market.
We still have a large number of investors who are actively seeking buy-to-let investments across the city, from studio flats to large HMOs, and with other investments offering derisory returns (even gilts and bonds are at all-time lows) we expect the demand to remain strong.
What about the residential and non-investment market? It is worth bearing in mind that there are still lots of affordable properties for young people. 5% deposit mortgages and Help to Buy ISAs, plus shared ownership and other schemes are to name a few avenues. Ostensibly, first time buyers are could well be benefitting from more help than ever to get on to the property ladder. However, saving a deposit remains a challenge and with the prospect of uncertainty of jobs, pay rises and the ability to save money all under threat, some will still find it harder than ever to buy their first property. That said, if property prices do drop, this will have a positive effect on the market for first time buyers as homes become more affordable and could be the stimulus the market will need if the market does struggle to sustain current prices. Without a doubt, first time buyers are the first step in the supply chain for the residential market and so the government should continue to do whatever it can to encourage and aid them in buying their first home.
Overall, our general view, is that property is still the best place to invest. The market will hold and the foreseeable future remains prosperous. Until we have a clearer understanding of Brexit and its impact, it is difficult to accurately predict what may happen, but that has always been the case for all types of investment.
If you would like more advice on your property or portfolio or are considering either selling or purchasing property, please contact our Sales and Lettings Manager, Andrew Gunner.
Written by Andrew Gunner, Sales and Lettings Manager for MTM Sales and Lettings.
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