It has to be said that the UK property market has performed admirably in light of what is a very difficult situation. Not only is the UK government under serious threat from infighting but the deal with the DUP is hanging by a thread and various EU member states have threatened to torpedo what many believe to be a suspect Brexit deal. As a consequence, there are concerns that the UK property market could come under serious pressure. What does the future hold for UK property?
There was a time when many believed that a weak sterling would bailout the UK property market in times of real trouble. As it happens, the UK property market has not yet reached crisis point even though London has moved into negative annual growth. However, the next few months are certain to be volatile at best and it is difficult see anything but a softening of prices in the short term.
The last couple of years, during which time sterling has taken a tumble, have shown that the risk reward ratio for overseas investors is not quite there yet. Maybe a further downshift in the exchange rate may prompt more interest? Especially when you bear in mind worldwide interest rates are still near to their historic lows.
Despite the turmoil spreading across the UK as a consequence of Brexit the UK economy was the strongest in the Eurozone in the last quarter. This comes at a time when Germany is expected to slip into recession although this could be short lived. While the likes of the IMF forecast the UK economy will lag the rest of Europe next year, battling with Italy towards the bottom of the economic performance tables, we have been here before.
Again, it is difficult to see any short-term good news on the horizon unless the UK government was to pull a rabbit out of the Brexit hat. That said, surely the relatively low sterling exchange rate against major currencies around the world is starting to assist exports? Could this help support the economy in the short to medium term?
Private rental property
Even if the UK economy was to stagnate or drop into recession there is still a shortage of newbuilds across the UK and intense competition in the private rental market. As we have mentioned on numerous occasions, the UK is running literally hundreds of thousands of newbuilds behind demand which is helping to support house prices to a certain extent. Rent yields also compare favourably to interest rates and we are unlikely to see any major softening in rental income.
The idea that the UK will overnight close the gates to immigrants is a red herring. The system will switch to that currently used for non-Eurozone countries although there may be a drop in numbers in the short term. Staff shortages in areas such as the NHS will likely need to be addressed sooner rather than later but this could be done by careful control of the future immigration system.
We may see some short-term concern sweeping through the economy and the property market but we have learned to live with the doomsday predictions of the last two years. So far the UK economy has not collapsed, it may weaken in the short term but a total collapse? Comments suggesting that the Eurozone has “bigger problems than Brexit” seem to have been dismissed by Remainers who seem determined to test the will of the British people with another referendum. Trade will not disappear overnight, in a worst-case scenario it will revert to WTO rules, which would hurt all parties unless a formal trading arrangement was agreed.
There is no panic selling in the property market, no collapse in house prices and rental yields are not under any undue pressure. There may be worse to come but so far the doomsday scenarios painted by supporters of the European Union are nowhere near coming true.