Turmoil on financial markets

The worldwide shock at the UK EU referendum result continues today with stock markets coming under pressure. We’ve also seen a significant fall in the sterling exchange rate with confusion and concern gripping the market. Interestingly a number of property shares had their training halted after breaking through volatility limits amid concern that the UK housing market could suffer.

The UK housing market has a strong correlation with the economy and if there was a weakening of the UK economy in the short to medium term, as many experts expect, this would have an impact upon demand for property. However, the more questions which are answered the more questions these answers provoke.

Demand for UK property

The UK property market, in the eyes of many people, has been defying gravity for some time and a slow deflation of property prices is not unhealthy. The concern is that a prolonged negotiating period regarding the UK and its exit from the European Union will not encourage investors. When you bear in mind that the buy to let market in particular has been very buoyant in the UK we could see some buy to let investors holding back and others may look to bank historic profits.

The underlying situation suggests that demand for UK property will increase in the long term, as there are currently significant housing shortfalls around the country, but in what investment environment in light of the EU referendum result?

UK base rates

A reduction in the sterling exchange rate against the dollar and the euro has caused some investors to flee markets in the short to medium term. At the moment, all things being equal, a lower exchange rate would help UK exports but we are certainly not in traditional times. Pressure is mounting on the Bank of England to reduce UK base rates yet further with the Gilt yield dipping under 1% this morning.

The Bank of England has already commented upon the potential upheaval in financial markets pledging it will “do whatever is required” to maintain calm. We already know about the £250 billion liquidity programme on hand but what else has the Bank of England got up its sleeve?

Call for referendum number two

Many people are buying into the false hope that we will see a second referendum on the U.K.’s membership of the European Union. The fact is that the UK population voted 52% to 48% in favour of leaving the European Union. There would be uproar if politicians used their veto to block a UK exit from the European Union and indeed while the referendum was “only advisory” the will of the people was clear.

It will be interesting to see how European partners react when the dust has settled and the inflammatory comments have died down. Investment markets are suffering, property prices are now expected to fall in the short to medium term and many investors have decided to sit on the sidelines for the moment. If only the European Union had offered the UK more control over areas such as immigration then perhaps we would not be in the situation we find ourselves today?

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