There is no escaping the volatility associated with Brexit which has caused concern and confusion in the UK property market. One day it seems a deal is imminent while the next day the warring factions seem even further apart. However, while political uncertainty does impact domestic economies it is worth taking a step back to look at the UK from a distance.
Fifth largest economy in the world
When you read the doom and gloom associated with the UK it is easy to forget the UK is the fifth largest economy in the world behind the USA, China, Japan and Germany. This is no Third World economy, no developing nation, as the UK has a history of being a worldwide economic force. As the second largest economy in the EU you could argue that the UK has been central to the EU economy and will be sorely missed.
As far as prospects for the UK economy outside of the European Union, where do we stand?
There seems to be a general misconception that a no deal with the European Union would somehow see the UK economy collapse into freefall. The fact is that even under the bleakest of scenarios, the UK would simply revert to World Trade Organisation (WTO) tariffs. The UK economy is not going to grind to a halt, there is life outside of the European Union and while the next few years will undoubtedly be a little choppy, the UK economy will learn to adapt.
Brexit and immigration
One of the largest red herrings which will have a significant impact on property market sentiment is immigration. The idea that somehow the UK will block all immigration from the European Union after Brexit is a fallacy. The UK immigration system for EU residents will revert to that used for other countries such as Australia, etc. There will be a different process but ultimately immigration into the UK will still be allowed. Indeed, there is an argument that the UK will have greater control to attract those who have secured employment, or have sufficient savings to support themselves, which will reduce pressure on the benefit system and public services.
As we have touched on in the past, the emotive headlines suggesting the UK property market is in freefall are plain and simply wrong. There is reduced growth outside of London, London property prices have moved into negative territory, but there is no collapse. The London property market has led the UK for decades and this recent retracement of historic growth is but a blip on the long-term graph. Indeed, there is evidence to suggest that London property owners are banking their “London premium” in order to acquire similar sized properties, outside of the capital, at a fraction of London prices.
UK rental market
The same is true of the UK rental market, even with recent tax rises, with demand still relatively strong. The difference between affordable property prices and actual property prices is significant in many areas of the country. As a consequence, it would take a total collapse in UK property prices to bring them back within the reach of first-time buys. Then again, the type of collapse required to bring house prices back into the reach of first-time buyers would be reflected in a similar economic downturn and reduction in household income. The affordability factor may even be worse in such a situation.
So, yes Brexit will be tricky, the UK will need to adapt under a Brexit deal or no deal scenario. However, those who suggest this is the end of the world for the UK economy, UK property and prompt images of the UK government pulling up the drawbridge to immigrants, are scaremongering to the highest degree.