Will Brexit affect the UK property market?

26 February 2016

What would Brexit mean for the property market?

Currently the one certain thing about Brexit is the uncertainty dominating the debate ahead of the poll on 23rd June.

Just what would a post EU Britain look like?

How long would a formal Brexit take?

What uncertainty is filtering down into the residential property market?

Most analysts agree that a vote to stay in will mean a return to business as usual relatively quickly.

If the Vote is to leave….

A vote to leave may affect the property market or at least certain parts of it.

There is a world of difference between a first-time buyer striving to get onto the property ladder in Nottingham and a wealthy oligarch buying a £50m residence in central London. They operate with different motives in different markets, and a Brexit would touch them in different ways.

Domestic Market

When it comes to the domestic market of owner-occupiers, a Brexit may not have much impact. Unless Brexit leads to a sudden increase in interest rates or changes the trajectory of income growth the current imbalance between supply and demand is still there and it is hard to see any major changes in the long-term fundamentals.

The government’s objectives of building more homes and creating a stable housing market are unlikely to be affected by the Brexit decision but any uncertainty is unsettling for any market and it is possible that some potential buyers and sellers may hold off until the result of the poll is known.

London Market

London Market

For London, however, there is a real risk to the property market from a Brexit as the top end of the London property market relies heavily on overseas investment with almost half of investors in central London being foreign.

London property is seen as a “safe haven” asset: it retains or increases its value and is protected by the stability and security of the UK as a liberal democracy. Whilst much of the overseas ownership comes from wealthy oil and gas oligarchs from the former Soviet Union and Gulf monarchies, rich Eurozone citizens have also used London property to escape the sovereign debt crisis and ongoing economic malaise.

European citizens are reckoned to make up around 15% of the prime central London market, and because capital moves freely in the EU it is currently easy for Europeans to invest in London.  For example ten times more Greek investors showed interest in investing in the London property market in the wake of the radical-left Syriza party’s success in the January 2015 general election.

In addition the prospect of a Brexit is already hitting the value of sterling (this week sterling fell to a seven-year low against the US dollar), with a further drastic plunge anticipated if the decision is to leave. Investment banks Citi and Goldman Sachs have both warned that a Brexit could cut sterling by a fifth in value as investors flee the pound.

Brexit may cost London property its safe-haven status among Europeans, as those already invested could sell up and look elsewhere in the EU, while others may be deterred from investing altogether.