The momentous referendum vote harbingers the biggest turning point in Britain’s history since World War Two – it brings the beginning of the end of our contentious 43-year relationship with what is now the EU.
Assuming there is no turning back, and as of now it looks like there won’t be, even after a two-year withdrawal period, Britain will live with the consequences, certainly the economic uncertainty in the short-term, the constitutional change it may bring, and years of re-adjustments in trade and regulations with the EU and the rest of the world.
The stock market is beginning to bounce back and in many respects after one week it seems pretty much, business as usual. We’re in the throws of electing a new prime minister and there’s still turmoil in the main opposition party. Until we see the new leader’s agenda there’s still a lot of uncertainty as to the way things will go. One view is that although Europe is being dogmatic in its demands, particularly on the immigration stance, these demands may soften over time leaving Britain with some sort of free access to the EU markets on terms which are acceptable to the electorate. Even if we don’t get totally free access, the tariffs are quite small and in effect neutralised by the devaluation of the pound. This could also be largely offset by our increasing trade with the rest of the world.
The vote has shown that a majority of people, particularly in England, are out-of-step with the politicians in Westminster, most of whom are pro-Europe. It also to some extent underlines the north-south divide – between the prosperous pro-Europe south-east and the north. This leaves the direction of political authority in Britain in disarray, and constitutional uncertainty, particularly in relation to the UK Union – Scotland and Northern Ireland in particular.
Triggering article 50 of the Lisbon Treaty is a decision for the Prime Minister alone, as it is constitutionally a royal prerogative, however, parliament could instruct him to do it. But whatever happens the withdrawal process could go on for years. EU ministers want to accelerate it, but this may not be in Britain’s interests, and so far we hold most of the cards.
This result is disappointing for most people in the UK large-scale property sector; it has led to uncertainty in the commercial and residential property markets, particularly in London, where agents want to encourage European investment in the UK.
As Britain is one of the three major players in the EU, the consequences of this vote to leave will be felt far beyond our own shores; adapting to the change will inevitably bring opportunities for some in property, as well as dangers, but everyone in property will have to make the most of the situation, good or bad.
Everyone will be hoping for a timely and smooth period of transition; consumers, employees, retailers and investors. We all know that much foreign investment has flowed into the UK as a result of our membership of the EU, so we shall now see how much of an effect the change will have on that. As with the constitutional issues, managing this transition successfully will be crucial to Britain’s future prosperity.
The fact is we are in uncharted territory and no one really knows what is going to happen over the next couple of years. What we can expect as a result of the uncertainty is quite a lot of volatility in the property and stock markets, which will inevitably have an impact on the economy as a whole and our continuing recovery from the 2008 recession.
If property prices are adversely affected in the short-term, and with a weak pound, value opportunities will inevitably be created in our property markets for foreign investors. Any dramatic drop in the value of the pound will alert shrewd international property investors, cash rich buyers from Asia, as well as from the US, who will be looking to take advantage of cheap UK property in a relatively stable and safe country.
Not everyone in property is pessimistic about the future: as certainty gradually returns investors will see the strong fundamental factors in a UK economy, which is the 5th largest in the world, and the UK should be free of some of the worst excesses of the EU, its profligacy, its red-tape bureaucracy, and the undemocratic technocracy it has created with its seeming inability to deal with major economic, migratory and security issues effectively.
For the small scale landlord there will inevitably be plusses and minuses. The hit to the economy of uncertainty could lead to a mini-recession, unemployment rising will affect tenants’ ability to pay rent, the drag on the economic recovery could lead to the need for even further interest rate cuts, and yet more financial support from the Bank of England, in the form of quantitative easing.
A reduction in interest rates would lead to cheaper borrowing, but the recent greater restrictions on borrowing and mortgage application criteria are likely to remain. House prices are likely to fall or at least stall across many parts of the country in the short-term but given that new-build could now be put on hold, a continuing shortage of homes will mean that prices should still continue to rise once things settle down.
House buyers and sellers will now go through an uncertain and anxious time with house sales put on a wait-and-see slow-down. On the other hand rental demand will almost certainly continue to rise across the UK as demand from tenants remains very strong, and can only be more so as new housing supply stalls. The effect is likely to be a continuing rise in rent levels, particularly in London.
Buy-to-let landlords profitability may see a knock from the recent stamp duty and tax allowance changes, but as noted by a recent LSL survey, landlords’ financial health is robust across the piece and should be in a position to withstand economic shocks, as is also the case with the lending banks. A bonus would be some form of compromise with the coming tax measures when a new Chancellor takes the Treasury reins and the legislation is finalised.
Tom Entwistle, Editor LandlordZONE® – 1 July 2016
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