What could Brexit mean for the UK property market?
With the Brexit deadline fast approaching, there has been a great deal of speculation as to what the UK’s withdrawal from the European Union will mean for the UK’s property and alternative finance markets.
Worth an estimated £5.9 trillion, the UK’s residential property sector makes up a major part of the country’s economy. And despite the lack of public information on how Brexit will be managed following the March 2019 deadline, the UK property market has proven resilient. Indeed, at the beginning of 2018, 53% of UK investors said they would rather invest in traditional asset classes such as property instead of newer asset classes, with 63% regarding property as a safe and secure asset in the current market.
While the direct outcome of Brexit on the property market is difficult to determine, post-Referendum trends offer a good indication to homebuyers, investors and developers on how the market is likely to react during this significant transition period.
The resilience of the property market post-Referendum
On 24 June 2016, it was announced that the UK would be leaving the EU. This announcement had a profound impact on markets around the world, as investors considered what Brexit entailed for the future growth of investments. The housing market was also affected. Economic tremors caused by the vote reduced transaction volumes for a short period of time, with house prices dipping as potential buyers became more hesitant about investing in property.
This sudden dip was short lived, with investor appetite for residential real estate remaining strong. An index released jointly by the Office for National Statistics and the Land Registry revealed an upward trend in the average UK house price cost just months after the vote – at £227,000, the average price in December 2017 was some £12,000 higher than in December 2016.
Although figures vary across the country, general trends in the housing market have looked promising ever since. Instead of a dramatic fall in housing prices, the national average has been steadily rising across the country. Average prices are still rising – but this is simply at a slower rate. Moreover, the rate of house price growth in the midlands and North East of England has been nothing short of impressive, with investors seeking residential and commercial investment opportunities.
Despite predictions that the property market would suffer in the wake of the referendum, investor confidence remains high. In fact, a study by Market Financial Solutions conducted at the beginning of 2018 showed that over half (53%) of investors are planning to direct their capital into traditional asset classes such as property this year. The climbing demand for property supports the long-held view that bricks-and-mortar are a safe and rewarding investment.
Difficulties faced in securing properties
Stagnant property chains have long been a cause of distress to both buyers and sellers of real estate. The problem is so great that that new laws to prevent gazumping was the most sought-after policy change by Britons – a nationally-representative survey by MFS found that 55% of people strongly supported the introduction of anti-gazumping measures.
Being stuck in a property chain – that is, being unable to purchase a new house without completing the sale of a current one – increases the risk of a property sale falling through. Given that the current housing supply has been outpaced by demand, stagnant property chains can have a huge effect on the overall growth of the market. The difficulty faced in securing properties is a nationwide problem, and with Brexit on the horizon, there is likely to be a surge in demand for property as more people seek out safe and secure assets that are able to weather periods of economic and political change.
Changes in banking rules
In light of the recent rise in the base rate of interest – raised to 0.75% by the Bank of England – homeowners paying off a variable or tracker mortgage are now facing a heavier financial burden. While not a drastic increase, the change means that the interest rate is now the highest it has been in almost a decade putting added strain on families and individuals facing mortgage repayments. Trying to get a mortgage through traditional methods is also likely to become more difficult in the near future, with banks tightening their lending rules to prepare for potential economic shocks.
Already faced with stringent and time-consuming lending measures, this latest interest rise could make it even more difficult for people to successfully acquire a mortgage from a bank. To overcome these challenges, investors and prospective buyers have before them alternative routes of accessing finance.
The rise of alternative finance
The rise of alternative finance has been stimulated by the demand for quick, simple funding – which has become increasingly difficult to secure from traditional lenders. Alternatives such as bridging loans gives buyers and investors the flexibility needed to secure a property acquisition in a timely manner.
In a competitive market, flexibility is key when it comes to taking advantage of real estate opportunities. The UK’s eventual departure from the EU is likely to herald new opportunities for those looking to invest in the property market – making access to finance especially important.
Particularly given such a competitive market, the flexibility that alternative finance allows people to make decisions quickly and secure their dream home – and all without the added stress of dealing with restrictive regulations. And despite initial concern about the future of the UK property market post-Brexit, real estate nevertheless continues to be a promising investment.