What is the state of the UK Property market post Brexit?
With a lot of different media outlets choosing to have their say about property prices in the UK, property values, etcetera, it is not always easy to keep one’s head. Most individuals, newspapers, and financial programmes seem to be claiming something different about the value of UK property – and frankly it isn’t easy to decipher the keen analysis from the heavily opinionated misinformation.
So 2 months down the line from the historic Brexit vote, what is actually happening, and what is likely to happen over the next few years?
__The immediate response…__
Prior to the outcome of the Brexit vote, Rightmove published data in June that showed asking prices were up 0.8% (1) - however, this could be slightly skewed by the fact that many people were betting on a Remain vote from the Brexit referendum and therefore may have expected nothing to change. We saw similar inflation on both the stock markets and currency exchange markets in the weeks leading up to the vote, as many people gambled on what they thought, would be the outcome.
So when these same Rightmove figures reported a 0.9% drop in July (2), post-Brexit, it would be easy to say property prices are falling because of the outcome of the Brexit vote and may continue to fall. However, if you take into account the inflation prior to the vote and that historically the summer months tend to be quieter and harder to sell – then perhaps the 0.9% drop doesn’t tell the full story.
The full story, well that has yet to be written, however it is, in our opinion, clear to say that nothing much has changed yet. If we look at the factors that historically have driven a rise or fall in property values around the UK, many of these factors are unchanged despite the Brexit outcome – such as a there being a very high demand for housing.
__What potentially could happen?__
There are many different possible outcomes, but here are three, which we think, are most likely and how, historically, the property market reacts:
- House prices continue to rise
This is certainly not as unlikely as many media outlets and ‘experts’ made it sound in the run up to Brexit if the ‘Leave’ votes won the day. Ultimately, Britain still has high demand for homes and not enough homes to meet that demand. And we all know what happens to the value of something when demand outstrips supply – this issue is not one that can be fixed instantly, as a result over the medium-long term it is likely that there will continue to be an upward reassure on the housing market across the UK, further pushing up prices.
- House prices drop
Although unlikely, it could happen. However, as our previous analysis of the supply and demand of housing in the UK showed, a consistent drop in house prices across the UK resulting in a period of negative total returns for investors and owners is unlikely to occur – not to mention that residential assets have delivered an average annual total return of 10.2% over the last 20 years (3).
This is why, even if consumer confidence does take a hit following the Brexit vote, it is worth taking a step back and looking at the bigger picture. The bigger picture, considering society isn’t turned on its head, supports a theory of steady growth in the UK housing market in the years to come due to a host of factors, the main one of which is a lack of supply versus a huge demand.
- House prices barely move
Even if house prices were to plateau for a period of time, they would still be able to produce an income for investors. With the demand for housing high, this affects both the ownership market and the rental market – pushing up both the value of property and subsequently the cost of renting.