Looking beyond the short term challenges for UK property market

Brexit is creating a plethora of investment opportunities for property investors who stick to cold hard facts and figures. Strip out the emotion of the worst-case scenarios, ignore the constant talking down of the UK property market and focus on the long-term future. The UK is the sixth largest economy in the world according to the IMF, importing significantly more goods and services from Europe than it exports. Even after Brexit there will still be net migration to the UK which will add to an already expanding population – creating ever greater demand for homes and rental accommodation.

In a continuation of David Cameron’s “project fear” last week we saw the mass media highlighting the Bank of England’s recent stress test. This suggested that UK property prices could fall by 35% over the next three years in a worst-case no deal Brexit. The chances of this doomsday scenario occurring are negligible but this has injected a degree of short-term concern into the property market. The key to successful property investment is to look beyond the short term challenges and envisage the long-term attractions.

Private rental accommodation

There has been growing demand for private rental accommodation in the UK for some time now. Even a short sharp shock for property prices would see house prices still unaffordable for the majority of first-time buyers. As a consequence, demand for private rental accommodation is likely to remain strong, further assisted by a chronic shortage of social housing. Even the recent introduction of new regulations and additional taxes for buy to let investors are unlikely to have a material impact on investor appetite in the longer term.

UK unemployment market

UK unemployment currently stands at near record lows, which is at odds with the nightmare predictions just after the 2016 Brexit vote. Whatever the outcome of Brexit negotiations, the UK will adapt and change in the short, medium and long term as it has done so many times before. Even though we may see a reduction in immigration numbers in the short to medium term, there will always be net migration to the UK due to the standard of living on offer and employment opportunities. This in turn will further strengthen the private rental market and offer the potential for long-term house price appreciation.

Property capital leaving London

A significant element of the recent weakness in UK property prices is as a consequence of the relatively weak London market. There are signs that London property investors are “cashing in their London premium” and using funds raised to acquire similar sized properties outside of London, at a fraction of the price. Historically, areas of England such as the North-West and the Midlands have benefited from migration of funds away from London and this is likely to continue.

It may well be that Brexit has ignited a rebalancing of the UK property market which has been heavily centred round London and the South East for far too long. Recent figures suggest increased investor demand for properties in the Midlands and the North of England and prices are reacting positively.

Prospects for the UK property market

Let’s not forget that the UK property market is still growing year-on-year meaning that in many areas of the country property prices are significantly out of reach of first-time buyers. Therefore, demand for UK private rental properties is likely to remain strong for some time to come. The darkest hour always comes before the dawn and it is fair to say that concerns about Brexit negotiations have grown significantly in recent weeks. However, property investors with a long-term strategy, including strong rental income streams, will have numerous opportunities to cherry pick attractive investment options in the short to medium term.

Even though UK economic growth forecasts for 2018 and 2019 have recently been downgraded there is no talk of a recession. It is fair to say there is relatively strong underlying demand for UK housing stock.

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