Would a UK exit from Europe harm the UK property market?

Discussion in 'UK Property' started by Nicholas Wallwork, Jan 24, 2016.

  1. Nicholas Wallwork

    Nicholas Wallwork Editor-in-Chief Staff Member Premium Member

    David Cameron is currently attempting to renegotiate the U.K.’s relationship with the European Union amid plans for an in/out referendum probably sometime in 2016. Over the next few months we will see an array of propaganda in the media channels as those in favour of remaining part of the European Union highlight the benefits. There is also a growing momentum behind the argument for the UK exiting the European Union with those in favour of this particular stance highlighting a number of anomalies with the EU/UK relationship. So, would an exit from Europe harm the UK property market?

    Is there safety in numbers?

    As we saw during the 2008 worldwide economic collapse, to a certain extent there was a feeling of safety in numbers with regards to European Union partners working together. The collective strength of the European Central Bank together with leading lights such as Germany, the UK and France certainly helped to steady the ship during difficult times. However, the Greek issue highlighted the fact that one struggling member of the European Union does have the potential to bring down the whole project.

    As a consequence, and we will hear more about this from those in favour of exiting the European Union, there is concern that the UK is funding weaker partners. An exit from the European Union would see an immediate increase in the UK budget due to the fact the UK pays more into the European Union than it receives in direct funding.

    Currency issues

    When the UK government of the day refused to take up the offer of the euro many European Union partners treated this decision with tremendous disdain. The UK authorities were ridiculed, lambasted and ignored for some time but who is the winner today?

    The extreme volatility of the euro puts the British pound in good light and would seem to rubberstamp the government’s decision not to join the currency. This in itself has created an atmosphere where international property investors feel more comfortable acquiring property in the UK. To all intents and purposes at this moment in time an investment in UK property by international investors avoids the volatile euro but still offer some exposure to the underlying European economy. Is this perhaps the best of both worlds for international property investors?

    The future of UK property

    While the doom and gloom merchants would have you believe that the UK would be cast aside as an international pariah if it decided to leave the European Union, is this really the case? The UK is the largest importer of European goods and services, has a strong underlying economy and perhaps the property market would actually benefit if the authorities had more control over their spending?

    There are obviously reasons for maintaining membership of the European Union but in reality, whether the UK remains or leaves, this is unlikely to have any major impact upon the UK property market. International investors constantly wax lyrical about the UK real estate market – is this really likely to change in the foreseeable future?

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  2. PropEx

    PropEx Member

    Would a Brexit not force Moody's etc to re examine the UK's credit rating, which in turn would push up interest rates? Also, have a lot of international investors not left the UK already? Out of interest, what if anything would cause the UK property market to go down?
     
  3. Nicholas Wallwork

    Nicholas Wallwork Editor-in-Chief Staff Member Premium Member

    A massive and sudden (over a couple of years) shift in supply vs demand would cause the property market to correct and stabilise... This simply isn't on the cards though with massive house building deficits and a rapidly growing population.
     
  4. PropEx

    PropEx Member

    Well, only a few months ago, Bank of America said a Brexit would, "trigger a run on the pound and send investors running for the exit"
     
  5. Ricky Bhurji

    Ricky Bhurji Member Premium Member

    PropEx - Moodys are the least credible ratings agency - they tend to state the obvious long after its already very apparent!
     
  6. nmb

    nmb Well-Known Member

    If we are talking about currencies, which currency would you rather be in at the moment, the euro or sterling? They mocked the UK government when they refused to take up the Euro but who is laughing now?
     
  7. PropEx

    PropEx Member

    That is why I said, "Moodys etc" meaning pretty much all of the credit ratings agencies.
     
  8. nmb

    nmb Well-Known Member

    The credit rating agencies do not hold as much sway with the markets as they once did - there doesn't seem to be any consensus amongst them and, as suggested above, more and more they are reacting after the event as opposed to "foreseeing" issues in the future.
     
  9. PropEx

    PropEx Member

    That is hardly a new thing though, they have been doing that since the 70s, if not, before.
     
  10. Ricky Bhurji

    Ricky Bhurji Member Premium Member

    Don't really see the point in ratings agencies anymore.
     
  11. Ricky Bhurji

    Ricky Bhurji Member Premium Member

    Looks like the big date has been set- breaking news just now - UK to hold referendum on membership of the EU on 23rd of June 2016!
     
  12. nmb

    nmb Well-Known Member

    I would guess the biggest danger in the short to medium term is a run on the pound although with the UK importing more from Europe than UK companies export to Europe, surely the EU needs the UK from an economic point of view as much as the UK needs the EU? This is certainly going to be an interesting few months!

    I would be interested to learn how overseas property investors view the potential exit from the European Union?
     
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