Special Feature: Brexit and the impact on London’s property market

Mortgage Introducer

July 5, 2016

EU Brexit European Union
Last week, following a very close referendum, the country made the decision to leave the EU. The vote has left the London housing market in a state of uncertainty and left buyers, sellers and landlords feeling hesitant about what move to make next. 
Portico London estate agent’s regional director Mark Lawrinson, and property guru and NLA representative Richard Blanco give their predictions.

What was happening in the London property market pre-Brexit?

“The prime central London market was showing signs of a slowdown prior to the Referendum, and in areas of central London, we had seen prices start to soften following a decline in the number of transactions. However, for London as a whole, most analysts were still forecasting modest growth with hotspots created by infrastructure projects like Crossrail helping to significantly increase values in boroughs like Ealing”, said Mark Lawrinson, regional director of Portico.

How will Brexit impact prices?

FSE London: Full impact of Brexit still some way off

There’s an argument to be made that the weaker pound will help stimulate demand from overseas investors. Whilst the pound has got weaker, the Euro has also lost ground, so the exchange rate benefit of Brexit is likely to apply to investors with currencies tied to the dollar – notably from Asia and the Far East.

However, one of the main attractions for overseas investors (particularly from outside Europe) was that London represented a safe haven and a good place to park assets. Given current levels of uncertainty, it’s hard to make the case that this is still true, and there’s a risk that this may diminish the investment appetite for these sorts of investors (at least in the short-term).

There’s no doubt that anyone in the process of buying may be feeling some hesitation. However, the same is almost certainly true for those selling, because in many cases sellers are also buyers. So if that means that both supply and demand decrease simultaneously, then prices may not be impacted by as much as some people fear.

Mark Lawrinson said: “Outside prime central London, the market is driven by domestic buyers rather than investors, who will still need somewhere to live regardless of our status outside the EU. They will also continue to need to upsize as their circumstances change, and we expect this market to be relatively unaffected by Brexit.”

Certainly in the short-term therefore we don’t expect to see an immediate drop in prices across London, although the decline in prime central London which had already started pre- Brexit is likely to continue.

Will interest rates fall?

Richard Blanco highlighted that there have been rumours that the Bank of England will cut interest rates to 0.25%, which could help generate more demand from buyers. However rates are already at an all-time low, and he commented that, “Changes like this are unlikely to be made in the short-term. The markets are still volatile and people will be waiting to see what happens over the coming months.”

What about the lettings market?

It’s possible that the rental market may get a boost in the short-term, as people look to rent for longer in times of economic uncertainty. If this happens, we could see a rise in rental prices which could, in turn, attract landlords to the market.

Richard Blanco said: “Interestingly, if Boris, who was broadly pro-landlord as London Mayor, becomes the leader of the Conservatives and then Prime Minister, it’s possible that the aggressive stance the government has taken recently with tax changes to buy-to-let investments could be reviewed.”

With a new Prime Minister unlikely to be appointed until autumn, adjustments to taxation are unlikely to happen any time soon. Despite the less favourable tax treatment for buy-to-let investors, the lettings market has shown steady growth so far this year, and post-Brexit we expect to see this continue. With improvements in transport across the capital, there are more options for tenants commuting into central London, and new areas for landlords to invest to get both a good yield and a reasonable chance of capital growth.

Buyers need to be clever

It’s now more important than ever that buyers and investors purchase property cleverly. Good analysis is key, so ask an expert or do some research into which areas are up-and-coming or seeing strong capital growth, and if you’re investing, make sure to look where to find the best rental yields. Click on our interactive rental yield tool to the left to find out where in London a buy-to-let investment will pay off most.