Brexit’s impact on property investors

The property market has a case of the jitters thanks to the uncertainty whirling around Brexit. Boris Johnson has made it clear that he intends to facilitate the UK’s exit from the European Union on 31 October whether there is a deal or not.

Current headlines reveal plans for the PM to meet German Chancellor Angela Merkel in Berlin to discuss Johnson’s call to scrap the Irish backstop plan – which the EU has already rejected.[1] Other headlines point to government spin on the Yellowhammer document, a no-deal dossier leaked to The Sunday Times.

Meanwhile, the housing market is feeling the effect of back-and-forth Brexit talks, with the price growth slowing year-on-year and transactions down by 16.5%.[2] The trends are being heavily led by sentiment rather than being guided by steadfast financial factors.

The punch on UK property funds

The shaky period has seen property fund managers build up large cash buffers in case there’s a repeat of the major investor outflow that took place after the Brexit vote in the summer of 2016. Following the vote, investors in open-ended property funds had to be temporarily blocked from accessing their money as the cash flow quickly dried up because of the high outflow. This knee-jerk reaction to pile cash in a preparatory brace for a volatile market has negatively impacted on property fund performances.

Adrian Benedict, investment director for real estate at Fidelity International, estimates cash could make up as much as 25-30% of UK property portfolios. According to research from Morningstar, UK direct property funds with increased cash exposure has risen to 19.5% in May 2019 compared to 14.6% in May 2016. There continues to be an outflow trend in UK property funds, with £2.1 billion taken out of play in the 12 months to the end of March. As the possibility of a no-deal Brexit rises, so too does the possibility for further investor outflow.[3]

Crystal ball housing predictions

With the face of Brexit a changing and unpredictable beast, it is difficult to pinpoint exactly how it will impact the housing market post 31 October – it will depend on whether there is a deal and, if there is, what the nature of that deal is. More than that, though, it will heavily depend on market confidence and how well the UK’s exit as it nears and crosses that date will be communicated both domestically and internationally.

Advice from property experts has reflected mixed reactions as to the stability of the housing market, with responses depending on your goal for dipping into the pool. For the average investor looking to get onto the ladder, mortgage expert at Which?, David Blake, says to take note of the current buyer’s market and low mortgage rates – and putting the blinkers on and fixating on a fixed rate. Given buying a property is a long-term investment, it’s important to remember the short-term instability will eventually firm it’s shaky ground. David’s advice is that buyers and homeowners shouldn’t panic or make any rash decisions.[4]

The call to act cautiously, with an emphasis on still acting, has been echoed by the founder of propertychecklists.co.uk, Kate Faulkner. Kate says homestayers who want to buy and remain in their property for at least five years will likely see a value correction, even if there was a short-term dip. She also highlights a noticeable lack of property stock as people “batten down the hatches” to wait for a firm outcome, but that those hoping for decreased property values will be disappointed as the supply continues to dry up.[5]

Director of policy and practice at the National Landlords Association, Chris Norris, has put out a calming message for those with buy-to-lets, saying “It is likely that landlords with established, well-capitalised portfolios will fare reasonable well”, but those relying heavily on financing might need to weather more of a storm. According to Chris, the main concerns for landlords lies in their responsibility to ensure their tenant’s have the right to rent – which could cause confusion if they rent to EU citizens.

Expert property law advice

The team at Insight Law can provide detailed advice for your property needs, whether you’re looking to buy as a first-time buyer, upsize for your family home, downsize for retirement, start or expand your property portfolio. While the political talks around Brexit might be in turmoil, we’ll help to ensure your conveyancing goes as smoothly as possible. Contact our team at Cardiff (02920 093 600) or Bristol (0117 925 6257) to see how we can help today.

 

[1] BBC News, ‘Brexit: PM to meet Angela Merkel with call to scrap backstop’ (21 August 2019) https://www.bbc.co.uk/news/uk-politics-49416475

[2] Ele Cark, ‘What will Brexit mean for house prices?’ Which? (20 August 2019)

https://www.which.co.uk/news/2019/08/what-will-brexit-mean-for-house-prices/

[3] Siobhan Riding, ‘Property funds perform poorly since Brexit vote’, Financial Times (20 August 2019) https://www.ft.com/content/dd7e86ba-bf3f-11e9-b350-db00d509634e

[4] Ele Cark, ‘What will Brexit mean for house prices?’ Which? (20 August 2019)

https://www.which.co.uk/news/2019/08/what-will-brexit-mean-for-house-prices/

[5] Ele Cark, ‘What will Brexit mean for house prices?’ Which? (20 August 2019)

https://www.which.co.uk/news/2019/08/what-will-brexit-mean-for-house-prices/

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