What will the EU referendum mean for UK Property Market?

The UK’s forth coming EU referendum, regarding Britain’s involvement in the European Union is having an impact on financial markets. As uncertainty has arisen regarding the effects of what an exit or “Brexit” would entail. We will look at the possible effects on the property market should the UK exit the European Union via an out vote in the EU referendum in June 2016.

Why are the UK having the EU referendum?

The UK have questioned the powers that Brussels has to govern the UK for some time, and many are unhappy at the level of input and power that is given to the EU. David Cameron made the promise to hold an EU referendum in his 2015 election manifesto. He in his pledge, wanted to give the British public the chance to decide the future involvement with the European Union (EU). This so called in/out referendum is now upon us in June 2016. In February 2016 the reforms have been negotiated and the campaigning has officially begun. Boris Johnson the mayor of London has been extremely vocal campaigning his out position.

What would happen in the result of an Out Vote at the EU referendum?

If the UK voters decide to vote out in the EU referendum, the prime London property market may be the hardest hit. Foreign buyers have been highly active in the prime London property market. The Prime London property market has long been regarded by commentators and property investors both nationally and internationally as a low risk, stable investment. This perceived status may be questioned should Britain no longer have a seat at the EU table. The economic union provides freedom of trade and movement within the European Union, there could be a knock on effect on London’s Financial hub. The city of London and its status as the financial capital of Europe, is integral to the London appeal. The possibility of an out vote or ‘Brexit’ in the EU referendum, may have a possible knock on effect for property investors and buy to let investors. The expectation is that if Britain remains in the EU there will be little to no change for buy to let landlords. The real impact will be caused by the upcoming Stamp Duty increases.

The Lead up to the EU Referendum

As already seen, with the GBP hitting a 5-Year low against the Dollar, amidst the backdrop of EU uncertainty. If Britain does vote to leave the EU, GBP will be affected initially by a Brexit. This strengthens the buying power of overseas property buyers looking to invest in UK property. With this uncertainty regarding prime London, those looking to invest in the UK property market, may look to invest in other areas such as the northern regions, for stable income and capital growth. Irrespective of the EU referendum. The UK’s involvement in the European Union will not change the underlying market driver of increasing house prices. This is caused by an under supply of homes to keep up with current demand. If the UK vote in or out in the EU referendum, this shortfall will remain and continue to drive prices up. Positive data releases and the media coverage of the Governments continual and planned investment into the Northern cities has brought attention to cities such as Manchester Liverpool and Leeds. This stems from Chancellor George Osborne’s plan to rebuild the ‘Northern Powerhouse’. International and institutional investors are drawn to these regional cities. Lower priced property, yields beating those available in London. Coupled with the potential of achieving higher capital growth than prime central London, property investors can build property portfolio in the regional cities and have confidence in the expectation of rising capital values over the next 5 years and a rising rental yield year on year. In the lead up the Scottish referendum, where it was put to a vote if Scotland should separate from Great Britain. Investors were cautious in the lead up, as will be seen in the EU referendum due to uncertainty. However, in the Scottish referendum, once it was concluded that the voters had decided to remain as part of Great Britain investment continued as normal. It is expected a similar trend may follow due to the EU referendum. Prime London property market showing signs of a mild slow down. In light of this it is anticipated that we will see a change in the direction of capital with more investment finding its way to the Northern cities Manchester, Liverpool and to Greater London.