On 23 June the British public voted to leave the European Union – and the decision seemed to take many on both sides of the EU exit debate by surprise. It’s fair to say that the immediate impact was anything but positive: the pound plunged to its lowest value in 31 years, while global equity markets lost over $2 trillion dollars in the biggest single one-day loss in history.
As grim as the initial response might have been in terms of the financial markets, it’s not entirely surprising and, perhaps more importantly, isn’t necessarily indicative of the longer-term economic consequences of Britain leaving the EU. So what sort of an impact is a separation from the European Union likely to have on the UK property and rental markets in the weeks, months and years to come?
Pre-referendum predictions warned of the potential for house prices to tumble in the event of an exit vote, with the Treasury forecasting that average prices would drop by at least 10 per cent – and possibly as much as 18 per cent – by mid-2018. Anti-Brexit chancellor George Osborne also warned that interest rates could rise, mortgages could be more difficult to secure, and that first time buyers could be particularly hit.
Was this just pro-Remain scaremongering? Other analysts have certainly painted a somewhat less drastic picture. Credit rating agency Moody’s has suggested that a reduction in immigration linked to withdrawal from the EU could lead to a curb in house price inflation, but that this lower-competition environment would in fact be to the benefit of first time buyers, in particular. With regard to interest rates, some economists have indicated that an economic slowdown post-Brexit would be much more likely to see the Bank of England cutting lending rates rather than increasing them, potentially lowering mortgage repayment costs for property owners and buyers.
Recent months have already seen something of a slowdown in house price growth, and it’s likely that the impact of a Brexit decision will be greater in some regions than others. Richard Donnell, director at property market analysts Hometrack, suggests that a decision to leave the EU “will be most keenly felt in the London housing market, which is fully valued and already facing headwinds”, and predicts that “modest price falls” are likely in some of central London’s higher-value markets.
Assuming the actual overall impact is more restrained than some of the extremes predicted during the pre-referendum shouting – a moderate slowdown in the housing market due to uncertainty among buyers, and no significant hike in interest rates – then the rental market is unlikely to be affected to any considerable extent. Mark Hayward, MD of the National Association of Estate Agents, recently described both the housing market and the property supply chain as “resilient”, and predicted that property prices and rents would maintain stability in the short term.
Of course, the reality is that any predictions about what might happen to the property and rental markets in the UK are ultimately based on assumptions which may, in the final analysis, turn out to be wildly inaccurate. There is already uncertainty over exactly when Article 50 will be invoked to begin the process of leaving the EU, and whether the UK’s withdrawal will be swift or a more drawn-out affair. Until we can understand the likely medium- to long-term effects on economic factors such as interest rates, unemployment, and even foreign investment, then the true impact on the UK’s property and rental sector will be similarly uncertain.