Have house prices dropped after Brexit?

Investment News
29 Sep 2021
8 min read
Investment News

Have house prices dropped after Brexit?

29 Sep 2021
8 min read

Brexit – the story so far

On the 1st of January 1973, the United Kingdom joined the European Communities also known as the Common Market, which would later become the European Union. This was to be formally ratified in the Referendum on the European Community (Common Market) which was voted on the 5th June 1975 which saw 67.23% (17,378,581) people vote to remain members of the Community.

In stark contrast, 47 years later in 2016, the popular movement known as Brexit had, at its core principle, the desire to see the United Kingdom leave the European Union. Euroscepticism, which encompassed the desire to reduce the powers of the European Union, or to sever ties completely, had been on the rise in the United Kingdom since the 1980s and the precursors of the Brexit movement. The start of the Brexit movement can be traced as far back as the 1990s with the Oxford Campaign for Independent Britain. The word Brexit itself is a combination of two words into one being, “Britain” and “Exit”. The question posed by the Referendum centred around if Britain should leave the European Union or stay?

Brexiteers believed that leaving the European Union would lead to improved border control, a better immigration system, and a fairer welfare system, as well as being able to control Britain’s laws – all of which could lead to a better quality of life. 

The votes counted in the referendum on the 23rd June 2016 resulted in the decision that the United Kingdom must leave the EU. Whilst 48.11% (16,141,241) of the voting public in the UK voted to remain, 51.89% (17,410,742) voted to leave. Whilst the win was of the narrowest margins, after four years of negotiations and three Prime Ministers, the UK formally left the EU at the end of 2020.

In this feature, Town Square Invest will analyse the effects of Brexit on the property market in the UK, discussing its impact since 2016, and forecasts its future effects on the market.

Immediate market response to Brexit vote

Stock Market response to Brexit

The immediate impact of the decision certainly saw the Stock Market significantly drop in value in the face of the uncertain future ahead. The Financial Times Stock Exchange (FTSE) 100 fell sharply, as did the European Markets and Wall Street, with the Dow Jones posting its biggest fall in five years. We saw the FTSE 250 – which is formed of companies that trade in the United Kingdom – fall dramatically by 7.2%.

Among the casualties were Aldermore being the hardest hit of the 250 companies, posting a 32% drop in the value of their stock but, to highlight the effect on the property stocks, Crest Nicholson closed 26% lower on the day. To put this into a real estate setting, among the biggest fallers in the FTSE 100 were the three housebuilders, with Taylor Wimpey suffering the largest fall of the three with a 29% fall in the value of their shares.

What happened to the Pound after Brexit?

As a direct response, The Pound (GBP) dramatically fell to levels not since 1985 (35 years prior) and in fact, started falling overnight by more than 10% as the results of the referendum were unfolding.

Brexit as a buying opportunity for overseas investors

In the immediate aftermath following the referendum’s outcome, the value of the Pound was negatively affected as the pound fell from an average of about 1.5 against the Dollar to 1.33 in a matter of hours. As we approach 5 years since the decision was made, the pound still hasn’t fully recovered and is currently at 1.41 against the dollar.

This was a very similar story for the pound against the Euro and before the vote, the Pound was worth around 1.3 against the Euro and this fell rather dramatically. It has been a turbulent 5 years for the two currencies and as we reach the vote’s 5th anniversary, the rate now averages out at around 1.17 against the euro.

Despite the gloomy outlook for the British Pound, the actual effect on the property market was quite the opposite. The decline of the British Pound created a very strong buying opportunity for overseas investors, where some saw their home currencies gain as much as 28%. The allurement of their currency being worth more against the pound was too big an enticement for bargain hunters and many invested in property in this period. These savvy investors were also counting on the value of the Pound increasing in the value over time, boosting the value of their investment should they want to sell and repatriate the money back to their home country. 

Bank of England’s response to the Referendum

With the UK Equity and Bond markets toppling all-round, property prices were expected to follow suit, as confidence was in short supply.

Mark Carney as the Governor of the Bank of England at the time, then set about supporting the market by reducing the Bank of England’s Base Rate in August 2016 from 0.5% to 0.25% in an attempt to pass on cheaper costs of borrowing to customers. In addition, he ensured the market’s liquidity by purchasing £60 Billion worth of Government Bonds and £10 Billion of Corporate Bonds, as well as providing Commercial Banks with access to £100 Billion at rates close to 0.25%.

It is without a doubt that in the immediate aftermath of the Brexit vote that Base Rates were cut from 0.5% to 2.5% in support of potential turmoil, however, this was far from the case and was relatively short-lived as the Bank of England then put rates back to 0.5% on the 2nd November 2017 and then increased them from their pre-Brexit rates on the 2nd August 2018 to 0.75%. Let’s not forget that the most recent rate cut back to the Brexit level of 0.25% on the 11th March 2020, and then on the 19th March 2020 to 0.10% was a response to Covid-19.

These measures allowed Banks to lend and similarly allowed for movement in the property market as homeowners seized upon the prospect of locking in on cheaper interest rates on their existing mortgages, as well as to trade up or down and move homes, therefore stimulating further movement in the housing market. As well as this, buy-to-let investors also took the opportunity to purchase or build on their existing portfolios, as they sought to re-organise their borrowings at rates that they could only have dreamt of in past times – hence increasing their income across their property holdings and purchases.

House prices after Brexit 2021

During the Brexit campaign, the Remain campaign focused heavily on UK house prices – some readers may remember George Osborne’s claims that suggested that prices could drop by 18% if the UK left the EU. Even the Bank of England at the time claimed that dislodging ourselves from the European Union would see property prices fall by as much as 35% over three years. However, in reality, there has not been the crash that was so famously predicted by leading figures in the United Kingdom.

Undaunted by the looming Brexit vote, according to the Office of National Statistics, the average house price in the United Kingdom at the time of the vote was £214,000, and although house price growth slowed somewhat in the year after the vote, the dramatic bursting bubble that many expected has yet to actually materialise.

In fact, the average UK house price as shown by the UK Land Registry and the Office of National Statistics now stands at £256,000 and despite Brexit and Covid-19, values are set to climb by +4% in 2021, with +21.1% total growth from 2021-2025 (Savills).

Investors who entered the property market during 2016 have had the opportunity to secure, on average, a staggering 19.6% increase in the value of their property.

How has COVID-19 affected the property market?

Picking up from where Brexit left off, COVID-19 was predicted to hit the UK property market.

However, the British Government was quick to react and introduced Stamp Duty incentives as well as reducing interest rates to 0.1%. With the pound still weak against all the major currencies, it fell yet further from the Brexit low of 1.33 to the Dollar to 1.14 from the pre-Brexit level of 1.5.

Despite all of the odds stacked against it and with most real estate institutional taking a cautious approach due to Covid-19, property prices still continue to rise. The movement in the market was fuelled by investor transactions that have been held up due to the pandemic, as well as pent-up demand that from people that wanted to move to accommodate better working conditions, as a result of their new normal and having to work from home.

According to Rightmove, August 2020 was the ‘busiest month for 10 years as home-buying superseded summer holidays’.  The value of the sales agreed in a single month had now been beaten and stands at a record-breaking value of £37 Billion. This represented a 20% increase on the last recorded highest value since data had started to be collated.

The UK property market is not just robust but resilient

Whilst the process of leaving the European Union began after the 2016 Referendum, it still took till the 31st January 2020 at 11 pm to end the United Kingdom’s 47-year membership. Despite many being fearful of what Brexit would do to the property market, it has created an environment for growth through the creative measures executed by the Government.

Certainly, where Brexit had not brought the misery forecasted, surely COVID-19 would, but once again, it did not. Property investment in the period did not plummet and real estate values have thrived and increased in the face of adversity. The low-interest rate regime put in place by the Bank of England and the reduced valuation of the Great British Pound, as well as the volatility in the Stock Market together with the poor performance of placing money in Banks to earn interest, has ultimately led to a buoyant property market.

What is becoming apparent is that the property market in the United Kingdom is hugely resilient and very stable. With seismic events of the likes of both Brexit and Covid-19 unable to make a dent in the UK populations and overseas investors fascination with property investment in the UK. 

Pick the right property consultancy

Many investors may already feel that they are experts in property investing and can sometimes jump in with both feet first and end up paying for expensive lessons. However, another way you can save a lot of time and effort, whilst benefiting from the experience of others, investing your time wisely in finding the right company to advise you on what constitutes a good property investment is worthwhile.

These companies have a vast knowledge base to draw on and will be experts in the field of buy-to-let property investing. Their advice can often lead to making the most of your money and can have the benefit of leaving you with more time for yourself. They will often focus on investments that are already yielding a return as they are already tenanted. In addition, they will already have looked into the track record of the developer, the project team, and the management company to ensure that the investment is sound and stable. They will be particularly keen on making sure that the location of the investment and the long-term demand for the property, for both rental and for sale to an owner-occupier is at the heart of their investment strategy.

Companies like Town Square Invest have been integral to the success of the UK property market. We provide much-needed information to our clients on the stability of investments and steer clients into properties that not only meet their requirements but reduce the risks that other properties may carry. For more information, contact Town Square Invest today for a one-to-one consultation.