BrexitJul 9 2021

How has the UK property market fared since Brexit?

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How has the UK property market fared since Brexit?
Credit: JAson Alden/Bloomberg via Fotoware

His comments were indicative of the political and economic discourse that dominated the build-up to the referendum. Extreme, polarised views painted either very bright or very bleaks pictures for different segments of the economy, depending on the potential outcome.

Of course, as has become painstaking clear since the vote, it was impossible for anyone on 23 June 2016 to know exactly what they were voting for. The terms of any Brexit deal were unknown, and would remain so until December 2020.

Now, five years on from that momentous referendum, it is an opportune moment to reflect on how the property market has fared in the intervening period.

Bold Brexit predictions

George Osborne was certainly not alone in predicting hard times for the property market should the Leave party emerge victorious. 

For instance, a report released by analysts at Deutsche Bank and credit rating agencies S&P and Fitch suggested that voting to leave the EU would instantly reduce the value of UK houses, while the National Association of Estate Agents claimed Brexit would reduce UK house prices by £2,300 and the average London house by £7,500.

With the benefits of hindsight, we know that such claims were inaccurate.

According to the Office for National Statistics, (ONS) the average UK house price in June 2016 was £212,887. By March 2021 (the most recent figures available) this number had risen by more than 20 per cent to reach £256,405.

It was impossible for anyone on 23 June 2016 to know exactly what they were voting for.

However, it would be wholly unfair and, perhaps, facetious to make light of those who predicted a property market crash – there was such fear and uncertainty in the build-up to the referendum that bold predictions became commonplace, with one feeding into another.

Certainly, what did unfold was a long period of political and economic uncertainty. In the five years since the vote, the UK has had three different Prime Ministers, voted in two general elections, and experienced a drawn-out process of negotiating then implementing a formal Brexit process. The onset of the Covid-19 pandemic has then resulted in further turmoil. 

Demand for bricks and mortar

To say that property prices have risen in spite of the prevailing sense of uncertainty over the past five years is not entirely true. Indeed, this uncertainty has itself fuelled homebuyer activity and property investment.

UK residential real estate is regarded as a safe asset among both domestic and international buyers; therefore, during periods of uncertainty and transition, such as the past five years since the EU referendum, investors are likely to gravitate towards bricks and mortar.

Official Land Registry data underpins this point. At the start of 1991, the average UK residential property value stood at £57,000, 20 years later this figure had more than quadrupled, exceeding £255,000.

The long-term capital growth of property investments is fundamental in understanding its strong performance in more recent years. 

In January 2020, Market Financial Solutions commissioned an independent survey of over 750 UK real estate investors, all of whom own three or more residential properties across Britain and Northern Ireland.

We found that 79 per cent intended to invest in more properties in the year ahead, with 61 per cent saying that bricks and mortar was, in their eyes, a safer investment than most other options available to them. 

There are, however, several other important factors at play. Coupled with this consistently high demand has been the well documented shortage in available housing. This imbalance between supply and demand has been critical in driving UK house prices upwards over many decades. 

In more recent years, record low interest rates have played their part, too. Since March 2009, the Bank of England’s base rate remained under 1 per cent, far below the levels prior to the global financial crash (the base rate in July 2007 was 5.75 per cent).

Last year it fell to a new all-time low of 0.1 per cent, which has meant that borrowing has been relatively cheap for homebuyers and investors. 

To say that property prices have risen in spite of the prevailing sense of uncertainty over the past five years is not entirely true.

The positive sentiment towards bricks and mortar as a safe asset (driven by historic data), the lack of supply, the low interest rate environment and, more recently, the stamp duty holiday, have all come together to fuel property investment activity in recent years.

This has helped to negate any potential negative impact of Brexit on the property market, instead driving prices upwards.

Buy-to-let market also undergoes changes

When assessing the evolution and performance of the property market since 2016, it is important, certainly from a property investment perspective, to also pay due attention to other reforms that have affected the market. 

After all, over the past five years, the buy-to-let (BTL) market has experienced a number of notable changes, which have changed the makeup of the sector.

In April 2016, an additional 3 per cent stamp duty surcharge was introduced for second homes. One year later, a tapered reduction in mortgage interest tax relief was introduced.

In October 2018, new regulations were brought in for houses in multiple occupation (HMOs).

In April 2019, the Government tabled a motion to abolish section 21 of the Housing Act 1988, announcing “private landlords will no longer be able to evict tenants from their homes at short notice and without good reason”. In May 2021 it was confirmed that the Bill was to be brought forward to establish this reform.

This series of reforms has naturally affected the property investment sector and caused landlords to reassess how they are managing their portfolios. For instance, the new HMO regulations have resulted in significant refurbishment and renovation activity, as landlords sought to bring their properties in line with the new regulation.

Nevertheless, as with the property market as a whole, demand for BTL investment opportunities has remained high. For instance, the National Residential Landlord Association’s quarterly Landlord Confidence Index shows that there were increased levels of confidence among landlords in both Q4 2020 and Q1 2021.

Further, a survey in May 2021 by The Deposit Protection Service found that 34 per cent of UK landlords had either purchased another buy-to-let property in the past year or intended to buy one within the coming nine months.

The aforementioned price growth has been a critical factor in attracting more investors into the BTL market, as well as encouraging existing BTL landlords to either maintain or grow their portfolios.

This price growth has been supported by improved rental returns of late – the HomeLet Rental Index shows that in May 2021 the average rental price for a new tenancy in the UK was £997 per calendar month, which is a 4 per cent year-on-year increase.

The long-term capital growth of property investments is fundamental in understanding its strong performance in more recent years. 

The property market marches on

Peter Wilding, the founder and director of the British Influence think tank, is credited with coining the term Brexit in 2012. Since the approach of the referendum 2016, the word has seldom strayed from the media spotlight.

Positively, though, the fallout from the Brexit vote – and indeed the formal implementation of Brexit itself – has not adversely affected the property market over the past five years. Data demonstrates that prices continue to march upwards, and demand for residential real estate remains high. 

That is not to say the market is unchanged, however. It certainly looks different today than it did in June 2016. But importantly, this is more the result of the aforementioned reforms to the BTL sector, coupled with the more recent changes in homebuyers’ preferences and priorities, which have been affected by the Covid-19 pandemic.

It will be fascinating to see how the market evolves from here.

As we emerge from the pandemic and the realities of Brexit become better known, investment flows are likely to change and we may also see different segments of the property market – the commercial sector, for instance, or residential real estate in rural areas – expand or contract at markedly different rates.

Nothing can be taken for granted; the state of the market must be constantly assessed and reassessed. 

Paresh Raja is the founder and chief executive of Market Financial Solutions (MFS)