It’s four months since Britain headed for the polls and voted to leave the European Union – so what impact has it had on the country’s property market?
Hindsight can be a wonderful thing in the world of investment.
Four months ago, when news broke of Britain’s decision to leave the European Union, speculators were quick to make knee-jerk reactions. Uncertainty over the country’s economy saw the value of the pound fall 10% against the dollar within a matter of hours, while stock markets rose as quickly as they fell.
In actuality, very little has happened since. Britain’s economic fundamentals remain strong. It’s still one of the best global markets in which to do business. And there are plenty of positive signs that it will prosper outside of the European Union, with nations such as the USA and China declaring their interest in striking trade deals with a UK decoupled from the single market.
Of course, questions still remain as to the exact terms of Britain’s exit, a process of negotiation of which will begin in March next year. The pound even fell to a 31-year low in early October when Theresa May announced when she would invoke Article 50, underlining how market volatility is being prompted by nothing more than speculation.
However, there is currently an investment window of opportunity in the UK of the like that wasn’t available before June 23rd.
And with property arguably the strongest investment in a post-Brexit UK, here are 4 things that have happened in the property market following the vote to leave the Union:
1. UK property prices have reached a record high. Yields remain strong.
While some forecast a fall in values following the vote, Britain’s real estate sector has demonstrated its renowned strength, and prices have continued their upward momentum despite recent political and economic developments.
Values rose 0.6% in July and the price of the average UK home has now reached a new record high of £206,145.
Quite simply, Britain does not have enough properties to satisfy the demand.
This is perhaps most noticeable in the private rented sector. According to Countrywide, if homeownership levels continue to fall at their current rate, 2017 could see more properties let than sold for the first time in 90 years.
Demand for rental property in the UK has increased 17,500 a month over the last decade, underlining the shift away from ownership among Britons.
2. More institutional investors are turning to the alternative property sectors
Many institutions withdrew from commercial property funds in the wake of Brexit and, although there are now signs of recovery, large numbers are still focused on seeking alternative investment opportunities.
By September £14 billion had been withdrawn from commercial funds amid concerns over what an exit from the EU will mean for European business and their UK operations. But commercial property’s loss has been the gain of alternative property markets.
With property still the preferred investment choice for institutions, there has been a number of high-profile deals made in sectors such as student accommodation, hotels, care homes and the private rented sector (PRS).
Alternative investments made up 13% of all UK property investment deals in July 2015. In July this year, that had risen to 16%.
High demand and low supply mean institutions can rely on a regular income from yields in sectors such as the PRS, and many see this is the ideal investment while Britain negotiates its way out of the EU.
3. There’s been a surge in interest from the Far East for UK property, particularly in Manchester
As popular Asian markets such as Singapore continue to endure poor performance, it’s little wonder many investors in the Far East are leaving their domestic markets and making the most of the current opportunity in the UK.
But it’s not London that they’re heading for.
With greater affordability and the highest yields in the UK, many agents in Asia are reporting a significant uplift in enquiries for real estate in Manchester.
“For domestic and overseas investors Manchester properties offer very attractive rental yields and with demand expected to increase significantly over the next five years I am confident that this is a trend that is set to continue,” declared Jonathan Gordon, Director at IP Global.
4. Has build-to-rent become the future of UK property investment?
Tenants have long been waiting for a new rental solution to outdated buy-to-let homes. But now the government is actively trying to increase investment into the build-to-rent sector.
It had already introduced changes to mortgage tax relief and increased rates of stamp duty on additional homes in an attempt to reduce investment levels into buy-to-let. But now the new Housing Minister, Gavin Barwell, has suggested that build-to-rent could now form a part of the government’s target to deliver 200,000 new starter homes by 2020.
In key cities such as Manchester, there is a demand for 4,000 new units each year to keep up with the demand for purpose-built rental accommodation. But only 1,417 annual units are set for delivery over the next eight years, emphasising the need for more investment.