Tuesday, 19 July 2016

Post Brexit UK Property Market

It's safe to say the Brexit vote came as a shock to most, so how will this affect the UK Property Market?

As expected, some companies restricted committing to additional spending during the uncertain period following the Brexit fallout and the immediate relationship discussions between the UK and the EU. This likely put off investors into UK Commercial Property, seen in the flight out of some high profile commercial property funds, with significant exposure to London commercial property as underlying assets. Thankfully this position has eased as more certainty has returned.

Residential Property still presents the same fundamentals which have driven the market for many years making it one of the most stable assets classes in the world. Most notably a considerable disparity between supply and demand and the ever growing "Generation Rent" tenant pool. While the fall out offers nothing yet to suggest any actual affect from Brexit, there are arguments that construction could slow down, while the population will certainly continue to grow, so there is good scope to suggest demand for housing stock will grow.

The expected post Brexit cut in interest rates from the Bank of England was not taken. This is a bold statement of confidence and gives strength to the broader UK Economy. This has seen the sterling bounce positively and the return of the UK FTSE to Pre Brexit Levels. Both indications have given confidence to investors.

The comparatively low sterling position, particularly against the USD and USD pegged currencies, presents significant opportunities for overseas investors, with an effective 10+% drop in the value of property for investors holding, or paid in these currencies.

Our view is that it may accelerate a change of direction and draw the focus to opportunities in other areas. Risk averse buyers may feel the London market is at the most risk of any slowdown in the market, appearing to be fully priced and fully taxed. London prices are already 47% over the Cities average property price at its former peak in 2007 and with tax changes that have a punitive effect on higher priced properties, now would not appear to be the best time to enter the market. With net yields circa 2%, it introduces currency risk when leveraging from overseas, with the likely requirement of an overseas investor having to supplement the rental income to meet the mortgage payment.

We are seeing a definite increase in interest outside the capital. Particularly across the Northern Powerhouse Cities. Within these key Northern Cities, Manchester, Birmingham and Liverpool for example, offering higher yields up to 8% and solid opportunities for Capital Growth, fueled by the UK Government focus on a one nation mandate. In addition, there has been significant Foreign Direct Investment, particularly into Manchester from China, Hong Kong and the Middle East.

Prices in the Northern Powerhouse Cities are far more reasonable than London, with typical £ per sq. ft. at £200 - £400. With London's low rental yields potentially translating into the introduction of currency risk for foreign investors having to supplement rental income from abroad to meet mortgage payments, the higher yielding Northern Cities offer a hands off, stable investment, with the potential for a cash flow positive investment. With the current dearth of income delivering financial products and asset classes, Northern Powerhouse properties have proven to be popular with overseas investors.  

In conclusion - the UK Property market is strong, it demonstrated strong resilience to the stamp duty changes (arguably a bigger change to the property market) and will, if it has not already, demonstrat it will continue to grow within a post EU Britain.

Contributor: Andy Sprowell, Managing Director BuyAssociation Marketplace

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