While it’s hard to dispute that Brexit is having an impact on the property sector, it’s also hard to pin down what, exactly, that impact is, especially since there are so many other factors at play and so many of them are moveable.
With that in mind, the best approach to analysing how Brexit is impacting the property sector could be to look at the factors which drive the property market and see how Brexit could be influencing them.
Supply and demand
For years now (if not decades), the UK has had a (chronic) undersupply of property both to buy and to rent and, in principle, Brexit could reduce the level of demand if it results in a significant number of people leaving and not being replaced. In practice, there are all kinds of reasons why this is unlikely.
First of all, EU nationals have only ever formed a very small part of the UK’s overall population, so, while their mass departure would almost certainly be noticed, it would be highly unlikely to pull the rug out from under the UK’s property market, either residential or investment.
Secondly, it is highly questionable whether Brexit would trigger a mass departure of EU nationals, given that those who have lived in the UK for at least five years would be perfectly entitled to stay.
Thirdly, it is even more unlikely that they would depart and not be replaced in some way.
If anything Brexit could actually reduce the level of supply if it means that the construction industry is left short of workers.
There are lots of factors which drive affordability but many of them revolve around the economy. Two of the most important are the availability of secure jobs and the cost of financing, or, to put it another way, interest rates.
Brexit could be a mixed bag on both these fronts. For example, people in some areas of financial services are clearly feeling very nervous about the prospect of losing access to the EU market.
At the same time, however, people in other areas of financial services seem to be taking Brexit in their stride (even if they, personally, would prefer to remain in the EU).
Similarly, while higher interest rates may sound like bad news for people with mortgages, they are generally a sign of a weak currency which is a benefit in certain sectors, including inbound and domestic tourism which are both major industries in the UK.
This is a very difficult factor to measure but it plays a huge role in the property sector. Based on buyer activity, it’s hard to avoid the feeling that buyers in London (and, to a lesser extent, the surrounding areas) are playing a waiting game to see what Brexit will bring.
This isn’t necessarily a sign of a lack of confidence in general, just a sign that many people, both residential buyers and investors, would prefer to see which way the wind is going to blow before paying the sort of prices needed to secure property in that area.
By contrast, buyers in many other locations seem to be “keeping calm and carrying on”, with the Midlands and the north of England being particularly robust.
This is a guest post by Mark Burns. He is the managing director of property investment company Hopwood House, who specialise in UK property investment including student property and property investments in Manchester, Liverpool, Sheffield and Leeds.