So Brexit finally got done. Four and a half years after the EU referendum, the UK parted ways with our European neighbours on the 1st January. Negotiations predictably went to the wire - Boris Johnson and Ursula von der Leyen were eyeballing each other like gunslingers at the OK Corral - but an agreement was ultimately reached and a ‘no deal’ Brexit mercifully avoided.
The big question now is what impact Brexit will have on the UK economy? This was the burning issue in newspaper columns and social media for months. And now, at long last, we can finally find out whether the economic model of ‘global Britain’ or EU membership is best. If only …
The problem, of course, is that Covid-19 has changed the economic landscape so much that it will be hard to extrapolate the effects of Brexit from the broader pandemic-induced slowdown. However, that doesn’t mean we shouldn’t try to work out what leaving the EU might mean for the property sector. After all, Brexit is a massive economic change for our country. And, like most tectonic shifts, it’s bound to have some impact.
The initial impact
House prices immediately stagnated after the referendum result four years ago. Then they fell quite quickly in late 2018 and early 2019 as uncertainty hit home. By June 2019, with no deal in sight and Theresa May’s majority as slender as a cigarette paper, house price growth was just 1%. And this was despite a lack of supply, which kept prices artificially high in certain areas.
The December 2019 general election, which delivered a comfortable Conservative majority, might have boosted the market in normal circumstances. But sadly, 2020 proved to be anything but normal. Covid-19 didn’t just tear up the rulebook in 2020; it tossed it onto an open fire and then scattered the ashes over a wide area. Therefore, whilst Brexit was never far from our thoughts, with some potential buyers taking a ‘wait and see’ approach, the much larger issue of the pandemic overshadowed everything.
Although the economic effects of Covid-19 will inevitably occupy analysts’ thoughts in the short term, few experts believe that our departure from the EU will have no effect in the long run. Economic disruption always comes with uncertainty. That’s a fact. What’s more, if foreign investors consider the UK less attractive after Brexit then it’s bound to impact the market to some extent.
It’s good news, therefore, that Boris Johnson’s deal has at least provided some certainty – as this is what investors crave most. Although foreign investors will have to pay a 2% stamp duty surcharge from April this year, many still believe that UK property remains an attractive proposition.
What’s more, any fall in the value of sterling will make British property look quite appetising, especially as yields are high in many UK cities. It must be stressed, however, that currency could fluctuate significantly for several months while the logistics of Brexit work themselves out.
The right to remain
The fate of EU citizens living in the UK may also impact the housing market after Brexit. Many landlords rely on EU immigration to find tenants. Although the government’s Settlement Scheme should provide reassurance, many EU citizens still feel uncertain about their future. This casts doubts on their ability to live, work and rent property in the UK.
The situation does seems a little clearer, however, for UK nationals living in the EU. Their right to stay put was guaranteed in the Withdrawal Agreement (although they will need to apply for residency). Consequently, there’s unlikely to be a rush of ex-pats returning home to inject new cash into the market anytime soon.
Places in the sun
Brexit could have some impact on Brits buying homes abroad though. Although we’re still entitled to buy second properties in Europe – imagine supping a glass of fruity red on a terrace overlooking the French Riviera – those of us who can afford this life of luxury will only be able to spend 90 days out of every 180 in the EU from now on.
In the long run, this might dampen enthusiasm for investing in property abroad somewhat. Investors might end up looking at the ‘English Riviera’ and UK coastal towns instead. Torquay might not have quite the same lustre as the Côte d'Azur but at least there won’t be any visa issues.
Building a new future
Of all the sectors related to the property market, construction is the one most likely to be affected by Brexit. Build to Rent schemes, purpose-built student accommodation, and retirement villages in particular all require a certain degree of investor confidence and frictionless access to building materials. The construction industry also employs a large number of EU migrant workers with specific skills.
What’s more, larger construction projects have often relied on the European Investment Fund and the European Investment Bank. With these funds no longer available after Brexit, the government will need to step in and use some of the reported €7.8 billion saved in EU membership fees to help out.
It’s promising, therefore, that the government is updating planning laws to remove red tape and also pledging to support the sector financially. Whether this will be enough to offset the effects of Brexit, however, is uncertain at this point.
On the home front
Whilst Brexit will inevitably effect property investing, immigration and the construction industry, it’s worth remembering, of course, that broader economic issues and government policy will influence the housing market more – especially now that the spectre of No Deal has been exorcised.
For example, the immediate availability of attractive mortgages seems uppermost in buyers’ minds at the moment. Although there has been limited availability for mortgages for those with a small deposit, the government’s 5% deposit pledge will put homeownership in reach for thousands.
Furthermore, because activity has remained robust over the last nine months, lenders should feel more confident about the year ahead. Some have even predicted negative interest rates to kick-start the economy. And if this happens, it could stay that way for some time – thus encouraging more and more people to upsize or get on the housing ladder.
The waiting game
Although the economic aftershocks of Covid-19 are likely to impact the UK economy and the housing market in the immediate future – the end of furlough, for example, could lead to a surge in unemployment from 30 April onwards – Brexit is still an important issue to monitor in the coming years.
The overall strength of the UK economy will be key. What will happen to the pound? Will London remain the continent’s financial capital? Will immigration continue apace despite referendum promises to take back control of the nation’s borders? The answer to all these questions will inevitably affect the property sector. The problem is, nobody knows for sure how this perpetual drama will play out for a while.
The main thing, however, is at least there’s a deal in place. Securing tariff-free and quota-free access to the single market should minimise uncertainty and keep the economy and the housing market chugging along. So let’s all count our blessings for now – even if we can’t tot up the precise cost-benefit calculations yet.