Impact of Brexit on the property market

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Posted in:Property and Construction, Real Estate|May 13, 2016 | Join the mailing list

With the referendum fast approaching on 23 June, speculation is rife on the potential economic effects of an exit from the European Union. Britain’s last vote about membership to Europe was held in 1975 and so the outcome of a British exit could have potentially huge consequences for the UK economy. Largely untested and unknown, individual viewpoint on the scale of the potential consequences of Brexit generally depends on which side of the fence you sit on.

We won’t be entering any political opinion in relation to Brexit in this blog but will instead consider the implications a majority “yes” vote on 23 June could have the UK property market.

George Osborne recently said on television that Britain’s housing market would take a “significant hit” if the public opt to leave the EU in June.

Residential Effects

The chancellor suggested that the two main knock on effects directly to the public will be:

  1. House prices will crash; and
  2. Households will be poorer generally

A Brexit could see a crash in house prices and therefore homeowners with mortgages may end up in negative equity. If they need to sell, they will be forced to do so at a loss. Investors in the property market will see the price of their asset drop in value and be forced to either sit tight and risk a further drop in prices or sell their asset at a dropped value. House prices crashing won’t be a happy occasion for non-homeowners. Increased mortgage rates will mean they won’t be able to afford to get onto the housing ladder.  We recently discussed the increase in the private rented sector and Brexit is likely to push even more people to the PRS as their only option.

Commercial

Most experts say that the London property market will be the hardest hit following a Brexit in June. KPMG carried out a survey last year that noted that “Britain leaving the EU would have a negative impact on inbound cross-boarder investment”. Other experts stated that “the impact on the property market would depend upon its impact on the economy generally”.

It is thought that another knock on effect could be to decrease in housebuilding and further worsen the housing crisis. This would mainly be caused by skilled European workers leaving the UK as they lose their right to work in the UK and their wages diminish in value simultaneously with the pound.

In the private rented sector the current trend of growth in institutional investors may become affected by an exit from Europe. It was recently reported that Henderson UK Property fund have taken steps to avoid this. Investors that try to sell will get 5% less than they would previously.

In conclusion, speculation at this stage is largely based on ifs and buts and uncertainty. Experts say that there has been caution exercised by investors since the general election last May and it is expected to continue until an outcome on the Brexit question is reached at the end of June. Critics of this have stated that it is only European investment that is affected and that global investment will continue regardless of the outcome.

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The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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