Today, the United Kingdom elected to exit the European Union, with 52 per cent of voters choosing to Leave. Despite uncertainty this morning, though, the property industry has rallied to remind the world that a Brexit does not change the fundamentals of the UK’s attractive housing market.
The news of the result was announced this morning, causing the British pound to fall against other major currencies. Bank of England Governor Mark Carney, though, was swift to reassure the country that while there will be “a period of uncertainty and adjustment”, there will also be “no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold”, as the UK begins to establish new relationships with Europe and the rest of the world.
“We are well prepared for this,” he added.
“The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning. We have taken all the necessary steps to prepare for today’s events.”
As well as the Treasury, the bank is also working closely with other domestic authorities and overseas central banks. Any future adjustments that might be introduced by the bank would be “supported by a resilient UK financial system – one that the Bank of England has consistently strengthened over the last seven years,” Carney continued.
“The capital requirements of our largest banks are now 10 times higher than before the crisis. The Bank of England has stress tested them against scenarios more severe than the country currently faces.”
Richard Lambert, Chief Executive Officer at the National Landlords Association, welcomes Carney’s steadying words, urging calm.
David Cox, managing director of Association of Residential Letting Agents, and Mark Hayward, managing director of National Association of Estate Agents, join him, predicting that in the short term, prices and rents will remain stable.
“We believe that the UK housing market is resilient, as is the supply chain that drives it,” they comment. “But as we indicated in our Brexit report last month, the bigger impact may well be in the skills necessary to drive UK housing development.”
“While markets may react negatively to today’s ‘Leave’ vote, the fundamentals underpinning the UK housing market still remain attractive,” comments Randeesh Sandhu, CEO of Urban Exposure, who also notes that foreign investment may increase too, thanks to sterling’s devaluation.
“A return to ‘business as usual’ may take longer than if we had remained as the specifics of a ‘Brexit’ will take time to determine,” Sandhu acknowledges, “but the imbalance between demand and supply in the UK housing market will endure.
“So while buyers may pause as the implications of Brexit are figured out, over the medium to long-term we do not expect housing markets to change drastically as a result of the vote.”
Doug Crawford, CEO of conveyancing firm My Home Move, notes that people choose to move home “for many different reasons – many of which are unlikely to be affected in the short term by the outcome of the EU Referendum”.
“This decision has been made against the backdrop of a UK housing market that is, arguably, leaner and fitter than at any point in the last 15 to 20 years, says Crawford.
“A strong regulatory structure, in particular through MMR, has meant we have sensible lending and the heat has already been taken out of the Buy to Let market with the most recent SDLT changes. Combine these factors with strong rental demand in the Private Rented Sector and an acute shortage of housing stock relative to the UK’s needs and it all suggests a stable market in the medium term.”
“There is still plenty of pent-up demand in the UK housing market and a leave vote doesn’t change that overnight,” agrees David Brown, CEO of Marsh & Parsons. “When you think back to before the financial crisis and the volume of transactions we were witnessing on an annual basis, there’s clearly scope for further improvement.
“The decision to leave doesn’t alter the fact that plenty of people have to and still want to move.”
Investor appeal is also expected to stay stable in the medium term, forecasts Mark Weedon, Head of Research at Property Partner.
“Between 1973 and today, the UK residential market has seen no five-year period with negative total returns, after accounting for both rental income and capital gains,” he comments.
“During periods of volatility like this, investors tend to prefer assets which can provide a reliable income, combined with lower risk to preserve their wealth. Now more than ever, investments that bring in a reliable income will be highly prized.”