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The impact of BREXIT – our thoughts

June 27, 2016 | Landlord News  

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However you feel about the result, it’s obvious that there is a huge divide in opinions and a lot of ‘mending’ to do politically. We now have the task of finding a new PM and a huge amount of EU rules to rewrite and renegotiate, which will take time and resources. Whilst we don’t fully know whether leaving the EU will have long term positive or negative outcome for the UK, at least we now have a little bit more ‘certainty’ in the form of a decision.

In the short term, most economists agree that Brexit will have some negative impacts on things such as the value of our pound and the value of the stock market. Coupled with reduced short term investment, this may lead to increased unemployment and culminate in a period of low or no growth, maybe even a small recession.

BUT, what’s the short term impact of Brexit on Landlords and the rest of the lettings industry?

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Impact of BREXIT on the Lettings industry  

In my opinion, I feel that the rental market will carry on functioning healthily despite the UK’s decision to exit the EU. Historically, the lettings industry tends to do extremely well during periods of low growth, as a demand for rentals increases. The continuing economic uncertainty will mean first time buyers will keep biding their time, and keep renting, further heightening demand for rented property.

We expect that rents will continue to rise across Leeds, and the rest of the UK, as housing supply stagnates and demand from renter’s increases. We may also see a further cut in interest rates, leading to cheaper borrowing for landlords, even though they’re already at rock bottom

The biggest threat to the lettings industry right now is a man called ‘George Osborne’. Could the Brexit decision, and the need for a new PM lead to a new chancellor too? Will that put an end to the mortgage rate relief that was about to come into play next year? This could make being a Landlord financially unfeasible, creating havoc with rental supply and forcing rents higher for tenants.


Impact of BREXIT on Landlords and Investors

Previous research undertaken by Rightmove revealed that, in many instances, BTL Investors bought forward 2016’s purchase plans to Dec, Jan and Feb to avoid the 3% Stamp surcharge. In addition, there was a palpable level of uncertainty in the sales market in the run up to the referendum itself. The combination of the two created a drop in activity, although it is difficult to ascertain exactly which has had the greatest effect.

What we do know is a lot of potential buyers have held back on their purchase decisions until the outcome of the referendum and that investors may continue holding back on purchases while they watch what happens to property prices. This could well continue into the autumn.

Upon the news of Brexit there were mixed reactions. In some instances purchasers have pulled out completely and in others it was the polar opposite: we’ve seen offers come in on properties and increased sales activity from those who now have the confidence to commence an investment purchase.

We may see funds for new mortgage applications within the BTL market tighten up further, restricting investment; this will create a downward pressure on prices and the number of transactions taking place. Those that can afford to invest in property may see this as an opportune moment to take action whilst the market is slow, and prude investors may find some excellent value deals to be had.

Ironically, and probably to the annoyance of leave voters, the weakened pound against the dollar and euro have opened up big opportunities for overseas investors to purchase British property. There has already been talk of increased activity from overseas investors taking full advantage of the weak pound.


Impact of BREXIT on General Sales Market

Industry experts know only too well that the UK property industry is extremely resilient and will see out this short term period of low growth. 

The economic uncertainty is likely to reduce transactions in the sales market overall, whilst many first time buyers and home owners sit tight and watch whether house prices remain stable or start falling.  This is likely to have a negative impact on house prices in the short term, however, as housing supply is still too low to meet housing demands, this should counter balance and prevent a price crash.

It’s likely that housebuilders and developers will be less willing to commit to new property projects due to the uncertain economic climate, and may find that funding for sites in the pipeline is reduced which will in turn reduce the number of new homes on the market over the next few years. This will make it almost impossible for the Government to hit their new homes targets, as well as putting upward pressure on house prices and rental values in the longer term as we demand outstrips supply.


In Conclusion…

I feel the lettings industry will continue to prosper and those brave enough to invest in BTL properties may find some good value deals right now whilst there is still some uncertainty in the market. The fact that demand for rental property continues to soar and can therefore demand higher rents, coupled with the fact current interest rates are so low, means that this is a decent time for Landlords.

The main concern is the Government’s medium to long term ‘obsession’ with wanting people to own their own house. It’s clear to me that there are many people embracing ‘Generation Rent’ and not solely because they have no choice, but because that’s what they choose to do, for flexible and hassle-free living that suits their lifestyles.

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