How has the UK property market reacted to Brexit?

How has the UK property market reacted to Brexit?

Jamie Johnson, CEO and co-founder of FJP Investment, takes a look at what leaving the EU - when we eventually do - will mean for the UK property market

How has the UK property market reacted to Brexit?

If we are to reflect on the current state of the Brexit negotiations – which have made very little progress in the last few months – it would be easy to assume that the UK is in a state of disarray. But while this may be somewhat descriptive of the current political deadlock in Westminster, we must be careful not to paint all sectors of the economy with the same brush. After all, many of the UK’s leading industries are striding forward.

The property market, for instance, has shown itself to be a beacon of strength and resilience in the face of economic and political turmoil. Initial fears about the future of the market post-EU referendum were quickly dismissed; since the vote, house prices have been steadily rising, new construction projects are taking place up and down the country, and property continues to attract strong levels of domestic and international investment.

So, while it is easy to let Brexit cast a dominating shadow over the economy, it is important to step back and note the positive long-term developments we are seeing in the real estate market. At the same time, we must also consider the challenges currently facing the market notwithstanding the political standoff – obstacles which should be a priority in months and years to come.

What do recent house price trends tell us?

If we are to look back on the headlines that followed in the wake of the EU referendum, the UK was presented with a cascade of doom and gloom predictions. And while there have naturally been some knock-on effects stemming from the vote – most notably houses prices in the capital stagnating – there have also been noticeable advancements that have strengthened the market. For one, the Midlands and North of England have championed house price growth over the past few years, driving up the national average house price.

Since the 2016 vote, house prices have risen at double-digit rates in many areas; by 16% in Birmingham, followed closely by Manchester and Leicester (both up 15%). The growth in property values can in part be attributed to the influx of investment into regeneration projects, which are reviving housebuilding efforts and supporting the improvement of infrastructure and transport links.

Meanwhile, domestic and foreign levels of investment into UK property have also remained strong. With just weeks to go until the (then) 29 March Brexit deadline, the number of transactions recorded in January 2019 for residential properties was 1.3% more than 12 months prior.

These figures just go to show that, while there is some hesitancy, real estate as a traditional asset class continues to offer attractive investment options for prospective homebuyers. After all, it has demonstrated time and time again that it is able to withstand difficult times with confidence and offer strong returns on investment.

Key priorities for the property market

As house prices continue to climb and transactions pick up, the challenge becomes to provide enough suitable housing to meet the needs of the population.

Yet, while construction efforts have been bolstered across the country, the currently imbalance between supply and demand remains a top priority. The Conservative government has long touted addressing the national housing shortage as a key policy agenda; in the summer of 2018, Prime Minister Theresa May reaffirmed this mission by pledging to put 300,000 new homes on the market by the middle of the next decade.

There is no doubt that progress has been made in this sphere. Multi-billion pound funding has been committed to construction efforts, planning reforms have been put in place and councils have been given the freedom to borrow more in order to build homes. As a result, in 2017-18, 220,000 homes were constructed – a number that is higher than in all but one of the last 31 years.

That is not to say that the housing crisis deserves any less attention now, however. The reality is that there are still not enough homes to meet the growing demand for accommodation, while construction efforts are progressing slower than necessary to reach the ambitious 300,000 target.

A recent study by Lichfields found that in 2020, about 50% of local authorities are likely to fail the test for building enough homes – the report revealed that only 44.1% of local authorities had up-to-date plans setting out how they could meet the need for new homes. Meanwhile, SME developers are also struggling, particularly when it comes to sourcing funds; 57% cited access to finance as their biggest obstacle.

Irrespective of the eventual outcome of Brexit, speeding up housebuilding efforts across the country must remain a national priority. Creative reforms are certainly needed, and there are some positive steps that can be taken to ensure that housebuilders and developers have access to the funding they need to continue delivering homes. Debt investment products such as loan notes, for instance – which are issued by private investors to the firms constructing a property – are one such measure that could support construction efforts.

Considering recent property trends demonstrates the resilience of UK bricks and mortar. Looking beyond the initial fears posed by Brexit, real estate continues to offer strong returns for buy-to-let investors and has proven its value as an asset class. So, while we can expect some hesitancy from the market as the details of the final EU withdrawal deal are unveiled, there is little evidence to suggest that Brexit will ultimately dampen foreign and domestic investor sentiment towards property.

Jamie Johnson is the CEO and Co-founder of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.

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