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EU Referendum: How would Brexit effect the UK property and rental market?

Posted by Lais on 21/06/2016
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With the EU referendum campaign in full swing, many of us are trapped in a confusing haze of contradicting figures and forecasts from both the remain and leave campaigns.

As a young start-up company, we have been very lucky to have been able to spearhead our quest to drive affordability in the Private Rented Market by accessing European H2020 funding – the ODINE programme for Open Data Businesses. This pot of money, 100,000 euros, helped us to launch our service and enabled us dramatically to increase the confidence levels of our results to all our users. It has been critical in keeping the idea of RentSquare alive and bringing us to market much faster for the benefit of both tenants and landlords.

Brexit and innovation in housing
The uncertainty of the referendum could have a negative impact on companies like us, both who are starting in their journey and can access pots of money specifically for R&D but also those at a later stage who are looking for equity investment. Future potential uncertainty might mean companies like us, with a social impact vision, trying to disrupt markets are just too risky for future investment.

By participating in the programme, we were also able to tap into a range of mentors, based all over Europe, who brought and shared their expertise on data, business development and expansion opportunities beyond the UK. It also confirmed our suspicion that the problem of housing affordability is not only a London or UK issue but one present in many cities across Europe too – and one which we believe we can help with.

What are the possible scenarios of a Brexit if your rent or want to buy a property
According to two of the bodies that represent the UK’s estate agents and landlords, UK property would become more affordable for first-time buyers and that rents would in fact fall.

The National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) explain in a report; a Brexit could mean lower demand levels with fewer people looking for accommodation, although that doesn’t account for people entering the UK from other countries. However, in years to come, some control of people entering the UK could help poorer areas of the country where people are struggling to find safe and reasonably priced accommodation, this is, of course, good news if we were to leave.

However, David Cox, the head of ARLA, said tenants should not get too excited about potential rent falls, as buy-to-let landlords may quit the market following a vote for Brexit. There are many levels of the rental market from the lower end of social housing, through to the student market, young professionals and up to the higher private end of the market. As such, each area of the rental supply chain would inevitably feel the impact differently. So of course, lower rents would in most cases negatively impact landlords.

Letting agents also state that UK house prices would be worth £2,300 less in 2018 and £7,500 less in London if we left the EU, which would be great news for first-time buyers and those looking for a buy to let mortgage.

Within London, CEBR predicts an increase in house prices from around £536,000 on average in 2016 to £599,200 in 2018. In a Brexit scenario, the average London house price could be £7,500 cheaper in 2018 than it would otherwise be, at £591,700. However, although that may sound like music to those wishing to invest in property. An uncertainty of the wider market and fears of people’s purchase power should the UK fall into another economic crisis following a Brexit (i.e., if exportation decreases and unemployment goes up) could result in a huge reduction of people being able to buy into the market in the first place.

The NAEA and ARLA report suggest an out vote “could provide first-time buyers with breathing space as demand for housing eases off,” giving those struggling to get onto the property ladder a better chance. However, it warned that Brexit could eventually hit the construction industry, jeopardising plans to build more houses, with 1 in 20 workers in the British construction industry coming from non-UK EU countries.

EUReferendum: possible scenarios

The effect on incoming investment
A KPMG poll of 25 global real estate investors with assets under management of over $400bn revealed that two-thirds believe a Brexit would result in less incoming investment into UK property market.

The International Monetary Fund (IMF) have also warned that Brexit would lead to “sharp falls” in house prices and the stock markets. Within the NAEA and ARLA report, it also states that 17% of overseas buyers in London’s property market were EU nationals in 2013.

But, according to Stephen Williams, an equity analyst at the investment manager Brewin Dolphin to IBTimes UK “As far as domestic supply and demand are concerned, I’d say there aren’t that many major risks, other than if interest rates go up faster, or more than currently expected. We’ve still got this demand and supply imbalance, and I think the demand is still there, supply is still limited. From a domestic point of view, I don’t think Brexit is going to have a significant impact at all. The market is probably overheating anyway at the moment… I don’t think the UK’s safe haven status would be impacted too much by Brexit.”

If we did leave the EU, and the UK sterling become weaker if we Brexit, we could, in fact, attract more investment into London property. When sterling plummeted during the financial crisis, the London market boomed because foreign investors flooded in and bought up property in prime central postcodes at relatively low prices.
Both the NAEA and ARLA have refused to endorse either the remain or leave campaigns.

So what do estate agents have to say about the upcoming referendum?
Savills warned in its recent results that the UK residential and commercial investment markets were “subdued” in the run-up to the EU referendum. The Royal Institution of Chartered Surveyors also echoes this feeling, explaining the referendum could bring “a degree of uncertainty for buyers that may negatively affect some elements of the market”.

Knight Frank explained that “experience from the 2014 Scottish referendum shows that we ought to expect a slowdown in housing market activity as we get closer to the polling date.” They also state that 49% of investors in central London property are foreign.

The common denominator across both sides of the argument for how the property and rental market will be affected appears to be uncertainty and a bunch of ifs and buts. What is apparent is that many industries, including the property market, appear to be holding back from investing until we have a clearer picture of the outcome. Understandably this is having a stagnant, anxious and negative effect on stock markets.

It’s also worth pointing out that the regulation and laws of the housing and rental market are dealt with by the UK government and local authorities rather than the EU. However as we all know many other factors could both benefit and negatively impact the housing market as a whole if we leave the EU.

Either way, one of the main things we’ve all seen and learnt from the referendum campaign is that people aren’t happy on either side of the fence. If we stay or leave the EU, the issues currently being addressed could well spark renegotiations with the EU or create new policies that may improve some of the issues and unrest we’re dealing with in the UK for the benefit of everyone.