Feelings and forecast for UK property investment during Article 50
UK property investment – just how will it fare now that Theresa May has triggered Article 50? As we discussed in our article asking, “How will the UK property market perform in 2016/17 after the Brexit vote?”, the post-Brexit pandemonium that most property market experts had forecast lasted a month.
It hasn’t been plain sailing since then, though. Prime London prices have been hit. The rest of the property market, though, has seen property values explode in Brexit Britain.
However, with every milestone that is reached and breached, emotions will come into play. It’s natural to ask, ‘what’s next for property investment?’ UK triggering Article 50 is the biggest milestone to date, and likely to be the biggest until the UK leaves the EU. Here we look at seven ways in which this milestone could affect the investment property market in the UK.
1. The property market will probably stabilise
There’s a saying in the market: ‘sell on rumour, buy on fact’. Even though the EU Referendum appeared to be fact, it’s only now that Article 50 has been triggered that Brexit is fact. The country now knows its path for sure. A short-term example of ‘sell on rumour, buy on fact’ is sterling. In the three days before Article 50 being triggered, the value of the pound against the Euro fell by around 1.5%. In the two days after, it recovered its loss entirely, to close almost 2% above its March 29th low.
So, where do we see property prices heading now? The certainty that triggering Article 50 has given is likely to increase confidence. Sellers will want higher prices. I suspect that UK property prices will continue to rise through the next two years.
2. Interest rates probably won’t rise
I’m going to stick my neck on the line here: I think the Bank of England will keep a lid on interest rates. If they do increase them, it won’t be by much. They want a stable economy. They want to promote business investment and growth. Despite the probability of higher inflation, the BoE won’t want to upset the applecart.
Lower interest rates help affordability, and that could help property values ease upwards as wage inflation rises.
3. Demand for homes probably won’t fall
There is a shortage of housing stock in the UK. I can’t see demand falling. However, developers are more sanguine about building. This demand/supply dynamic will help to push property values higher.
4. London property prices will probably rise slower than elsewhere
London property prices will likely rise slower than other areas. We’ve already started to see this happen – property prices in UK regional cities have exploded, while London prices have chugged along. This change in house price inflation isn’t entirely down to Brexit, though. The house price to earnings ratio in London is at record highs. Investment property in regional cities and commuter towns offers some incredibly good value in comparison.
5. Overseas investors will probably continue to buy UK property
The uncertainty is out of the way, but even through the last ten months of ‘will she/won’t she?’, overseas investors have not been put off buying property in the UK. The fall in the pound since the EU Referendum has made UK property even better value for foreign investors. The UK economy is stable and growing. Jobs are still being created. Consumers are still spending. These economic highlights underpin the property market’s attractiveness to the overseas investor.
6. The media will still say the UK property market is doomed
Whatever happens, you can expect the media to publish every little rumour as fact during the Brexit negotiating process. And, as is always the case, the media likes to be sensationalist. So, the market ‘will plummet’. My advice is not to listen to the media, and never believe all you read in the newspaper.
7. Commuter towns probably will outperform central London
Prime London property hasn’t performed as well as outer areas in recent months. The east of London has performed very well. But it’s in the commuter towns that investors will probably find real value while the Brexit negotiations continue. Here you could see value and rental price growth that outstrips the rest of the UK.
However, central London isn’t doomed. As the end of the Article 50 process approaches, and it becomes clear that the London economy isn’t going to hell in a handcart, prices there will probably start to perform better again. What is seen as expensive today well be viewed as the bargain of the century in five or ten years.
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