As the Remain/Leave campaigns played out on the UK stage, the Chancellor of the Exchequer predicted that property prices would drop 18% should the UK vote to leave the EU, so when the announcement came on Friday morning, it sent shock waves through the property industry.
However, now the dust has started to settle we are able to take a clearer view on the state of play, Urban.co.uk determines whether or not a Brexit is going to raise the roof of the UK property market, or if we are all still as safe as houses?
So what happens now?
In all honesty, nobody really knows. Nothing like this has ever happened before, and everyone - from the politicians to the banks - are feeling their way in the dark.
It is likely that the change will bring about a period of volatility in the financial markets, which in turn is likely to have an impact on the property markets, especially on anyone looking to buy with the help of a mortgage. Head of the Bank of England Mark Carney gave a rousing speech on Friday morning promising the financial sector his full support, and providing access to the £250 billion ‘emergency fund’, put in place to ensure that should the banking community run into trouble there is an escape route available to ensure that a Brexit does not trigger a full-blown recession.
Politically, a Brexit appears to have ignited a chain reaction, which could lead to further periods of uncertainty within the UK. Following David Cameron’s resignation on Friday, there will be months of upheaval whilst a new Prime Minister is settled into place. In addition to this, the possibility of a second Independence Referendum in Scotland throws further confusion into the picture, and has the potential to slow down property transactions in Scotland whilst the decision is made.
I’m a landlord. How does it impact me?
It is likely that the private rental sector could be one of the only markets in the UK to benefit from a Brexit in the short term.
With fewer people looking to take the plunge and put their property on the market until there is a clearer view of the future of the UK, there is less property stock for buyers to choose from. With this in mind, many people are turning to the private rental sector to fulfil their housing needs instead. With an ongoing demand for quality, private rental properties, it is expected that rental rates will rise in the same way that property prices have been, particularly in the capital – great news for landlords, not so much for tenants.
With rental demands likely to rise, landlords looking to rent their property are in a great position, however there is one fly in the ointment. Forecasters are predicting a national rise in unemployment, with estimates suggesting that an exit vote could see wages cut by an average of £800 a year, and cause 820,000 job losses. With rental rates creeping up, it is wise to be aware that such changes could impact on a tenant’s ability to pay the rent, and could leave many landlords with empty properties as we move through the coming months.
I’m a tenant, will I be affected?
Good news, and bad news.
Following the stamp duty hike in April, many foreign investors were turned off of investing in UK property, leading to a slump in new rental properties becoming available. However, the drop in the value of Sterling has offset the stamp duty and tax adjustments, and once again the investment market has piqued the interest of foreign investors form the Middle East and Asia, many of whom look to buy bulk purchases of buy-to-let properties. This injection of investment will hopefully help keep rental rates manageable in the major UK cities, where the cost of private lettings peaks.
The bad news however, is that there are only so many investors, and with more and more people having to turn to the private lettings industry as the UK housing market weathers the storm, it may be harder than ever to find your perfect pad.
I’m selling my house. Should I change my plan?
According to property portal Zoopla, a Brexit is expected to slash £1.5 trillion off of the UK housing stock, bringing prices crashing down to levels last seen in 2011. The property portal estimates that the average UK house price of £297,000 would drop by £53,000, whilst property in London would fall from £671,989 to £550,989.
Whilst it is inevitable that in the short term there will be a downturn in the price of property, it is likely that this will be fairly short-lived. People in the UK are still very much obsessed with owning their own home, and due to the ongoing shortage of housing stock in the UK, there is still a huge demand for the small amount of property that is available. With prices dropping, this represents a perfect opportunity for buyers to get their foot on the property ladder, and this may help keep the market buoyant.
The UK market is driven by supply and demand, and with buyers still clamoring for the few available properties, it is likely that the prices will start to creep up again. This is even more likely if sellers hold off putting their properties on the market whilst there is ongoing political uncertainty, as the property stock will remain low.
I’m trying to buy. Will it be a problem?
It could help, or hinder you – it really depends on your situation!
If you are a first time buyer, you are now in a fantastic position. It is likely that property prices are going to drop, so you are likely to get that extra little bit of house for your money.
However, don’t crack open the champagne just yet – if you don’t yet have a Mortgage in Principle in place, you may find that you have to work a little bit harder with your lender to get the paperwork sorted. Although the Bank of England are expected to slash the base rate from 0.5% to 0%, it is likely that mortgage lenders may raise their rates as a way of controlling their lending levels making mortgages harder to come by.
If you are not a first time buyer, it is a nerve-wracking time. However, do bear in mind that price slumps impact the entire country, and if your property price suddenly plummets, chances are the property you are looking to buy will do so too.
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