What does the Referendum mean when investing in property?

Jul 25, 2017
What does the Referendum mean when investing in property?
The Referendum provided plenty of speculation around the property market in the Capital. Prior to the vote, the then-chancellor, George Osborne, predicted that house prices could plummet by as much as 18% in the event the country voted leave. Current data from the property sales website Rightmove shows that asking prices across the UK rose by more than £2,200 on average from June to mid-September 2016. The Royal Institution of Chartered Surveyors (RICS) says its members are predicting that residential property values will 
keep rising by 3.3% a year on average for the next five years.

Just as the economy steadies and house values continue to stabilise and increase, it seems that rumours surrounding the impact on the London property market may have been exaggerated.

Demand is still strong for rented homes and property for sale. This month, the Evening Standard revealed that one London estate agent is offering to pay home-owners in return for permitting access to value their home. You could also receive extra payment if you list your property with the agency. The offer suggests that the London market is still highly competitive and profitable.

There is evidence that shows that rented accommodation continues to be a good investment.

Market growth and demand

House prices in London grew at a rate of 10.9% between September 2014 to September 2015, according to the latest figures from the Office for National Statistics. That’s more than double the national average.  Rents in London also continue to rise – data collected by the Tenancy Deposit Scheme show average monthly rents in the Capital reached £1,765 in August. All these elements suggest a very positive investor outlook for the London property market, despite initial Referendum fears.

“A return to trend levels of growth.”

Since the Referendum there have been some negative predictions for the London property market, including suggestions that prime homes in the Capital would see a fall in demand.

However, even that pessimistic prediction has a very optimistic medium-term outlook. Leading property consultancy Savills predicts that prime property values will flat line through 2017 and 2018, before rising to 8% in 2019. Price growth is anticipated to rise to 21% between 2017 to 2021. If the property agent is correct, an average London home worth £481,000 in November 2016 could increase in value to £533,400 by the end of 2021.

Lucian Cook, Savills’ UK Head of Residential Research, says:

“The market will inevitably remain susceptible to fluctuations in buyer sentiment, but there is nothing to suggest the impact of the vote to leave will echo that of the global financial crisis. The summer market was slow but certainly not moribund, and the currency advantage brought international buyers back into the market.”

“Looking further ahead,’ continues Mr Cook. “We know the prime London markets have generally rebounded strongly after a period of adjustment.  While the tax backdrop will continue to be factored into buying decisions, no other European city has the infrastructure to match London as a world city and global financial centre and this should underpin a return to trend levels of growth.”

What our own numbers show

Barratt Developments PLC recently reported that despite the vote to leave, it has been business as usual, pointing out that there continues to be a long-term lack of new homes. The Department of Communities and Local Government suggests we will need an additional five million new homes in the next 25 years and that there is also a very liquid mortgage market.

George Salmon, Equity Analyst at Hargreaves Lansdown, said: “Barratt Developments has given the clearest indication yet that the much-anticipated post-Brexit housing downturn may be a false alarm. Of course, things could yet change, but with interest rates cut and the Government's supportive housing policy looking set to stay in place, Barratt remain confident that both the affordability of and demand for housing will remain high.”

Please note. The information in this article does not constitute financial advice or a recommendation to buy. No view is given as to the present or future value of property investment, and investors should form their own view or consult an IFA.