When it comes to the Brexit vote and property deals, with regards to our individual and business clients: so far, so good.
Understandably, clients I have spoken with are cautious about both short-term uncertainty and long-term impact. Yet, for the time being, many property investors do not see market conditions impacting them in the near future and therefore have not held off completing deals or finding new deals. However, there are predictions that the Brexit vote will have a negative impact on property sales over the next few months and potentially, years. Some property investors are sitting tight waiting to see what new European deals might bring and to assess the impact on their business models.
Charting uncharted waters: so what happens next?
The conundrum is that while on the 23rd June the UK voted in the referendum to leave the European Union; for the UK to leave the EU it must first invoke Article 50 of the Lisbon Treaty – and in reality, no one really knows how the Brexit whole process will work or how long it will take.
More than 1,000 lawyers have signed a letter addressed to the (then) Prime Minister David Cameron saying the EU referendum result is merely ‘advisory’, not legally binding and that in order to trigger Article 50 MPs will need to vote for new Acts of Parliament. Lawyers proposed that the government establishes, as a matter of urgency, a Royal Commission (or an equivalent independent body) to receive evidence and report on the benefits, costs and risks of triggering Article 50 to the UK as a whole, and to all of its constituent populations (I live in Wales which voted to leave by 52.5%). There are mixed views on whether the MPs would actually vote for the primary legislation if they do not believe it is in the nations’ best interests, but by not voting they would be going against the majority who voted to leave!
By 13th July, Theresa May had taken over as Prime Minister from David Cameron who had stepped down. She states that “Brexit means Brexit and we’re going to make a success of it”. Mr Hammond, the new Chancellor of the Exchequer, was of the view that once Article 50 of the Lisbon Treaty has been triggered by Mrs May, there will be two years of exit negotiations, which could well be followed by a further four. So, let’s think in terms of a six year timeframe.
What’s the impact on property?
There are a host of other variables that will have an impact on property prices including the following:
- Interest rates and the general state of the economy.
- If demand for housing decreases, property prices may fall.
- If the value of the pound decreases, there may be less inward investment.
Surveyors will find it more difficult to provide valuations. They are faced with uncertainty of how market conditions will change and therefore might recommend that the valuation is kept under regular review, and that specific market advice is obtained should you wish to effect a disposal. Lenders may accordingly review their LTV and valuations more closely in case market conditions deteriorate.
However, given that the interest rate has been at a record low of 0.5% since March 2009 and a further rate cut likely, this is good news for people securing a mortgage which can potentially shrink the rental market. The flip side is that people trying to save in ISAs will see less of a return so may take longer to achieve their deposit.
The RICS UK June 2016 residential market survey indicated that:
- Buyer enquiries fall for third consecutive month, the lowest reading since mid-2008.
- Agreed sales fall sharply with further drop expected in the short term.
- 12 month price expectations turn negative in London and East, but longer term forecasts remain positive.
Does bricks and mortar remain a sound investment?
Overall, property has been a good investment for many years. With the interest rate being low, property investors may still consider that property investment generates a better return than other types of investment. Given that it may be a number of years before we actually leave the EU, I remain hopeful that people will continue with their property investments whilst remaining cautious about their decisions.
In summary, the effects of Brexit on property (and many other areas) remain uncertain. Whenever changes happen, I will continue to advise clients. Watch this space for updates on the effects of Brexit on commercial and investment property dealings.