Brexit seems to have been in the headlines for a lifetime now and, as deadlines come and go, confusion over the implications of withdrawal from the EU shows no sign of abating. In this blog post, we discuss the pros and cons of Brexit in relation to the property investment sector.
In London, a city well known for its strong residential sector, there has been a noticeable stagnation in property prices and in some boroughs, prices have fallen dramatically since the Brexit vote. Yet to gain a more representative view of the UK property sector, one should also consider other major regions. House prices have seen strong growth in the past three years, particularly in the Midlands and Northern England.
Manchester in particular has seen meteoric growth with prices up 15% in three years. Following closely behind is Liverpool with growth of 12% in the same period. This is good news for investors, who have seen impressive capital growth. Such growth has been facilitated, despite Brexit, by ongoing public infrastructure investment and multiple regeneration projects in the cities.
Property Transactions Up
The number of property transactions has also increased in the past three years. Even in January of this year, when the UK’s departure from the EU was imminent, and uncertainty about the results of Brexit were arguably at their highest, 101,170 residential properties valued above £40,000 were sold. That figure represents a 1.3% increase on the same month in 2018. Such figures are representative of the fact that despite Brexit concerns, property is viewed as a stable asset which can deliver impressive returns in the long-term. Indeed, according to a survey of more than 500 investors undertaken earlier in the year, 39% intended to increase their portfolio no matter the outcome of Brexit.
Easier Foreign Investment
An effect of the Brexit deal, which some might term detrimental, has been a drop in the value of the pound. Although this has made investment by British investors in other countries far more difficult, it has had the opposite effect for international investors. They have found that a weaker pound has enabled them to invest in UK real estate far more easily. This effect has been particularly noticeable at the top end of the market. Figures recently published by HMRC show that the number of properties purchased for over £10 million increased by 50% following the initial Brexit vote. It is partly this foreign investment which has led to the regional markets mentioned above becoming construction hotspot.
Yet these investors have also found North West property investment to be particularly profitable, especially in Manchester. The city boasts rising employment levels, affordable homes and infrastructure investment. As a result, interest in buy to let properties in the city has increased dramatically. Chinese enquiries increased by 255% in January 2018 compared to the same time the previous year.
Strong Demand for Buy To Let
According to research by MFS, 77% of investors believe that their investment strategies will be unaffected by Brexit. The majority of investors therefore clearly recognise that UK property investment is still a viable option. There appears to be the greatest demand for buy to let property, with its potential for high yields. Rental demand is estimated to have risen by 13.3% in the past year, whilst rental stock fell 6.9%, according to Reapit data. As the number of renters continues to rise, investors continue to invest in this sector; 18% of those surveyed by MFS said that they had considered investing in another property in the past year.
Unfortunately, Brexit may also have a negative impact on some aspects of the property sector. The UK is currently in the grip of a housing crisis, with few affordable properties on the market. The Government has put forward a framework to address the most pressing issues, with a pipeline of new homes, but due to political instability, it is unclear whether their audacious targets will ever be met. National Audit Office data suggests that half of local councils will fall short of house building targets by the end of the year. Whilst Brexit negotiations are on the table, they will always be the Government’s priority. Other issues, such as the housing crisis, will continue to take a back seat until Brexit is resolved. Even so, some positives can be taken here, too. Planning reforms are now in place and councils up and down the country have been greater freedom to borrow the capital needed to build more homes. Indeed, between 2017 and 2018, 220,000 new homes were built, a higher volume than in any of the past thirty-one years, bar one.
What Henry Clare Can Do For You
It is evident that Brexit has, in some respects, had a detrimental effect on the UK property sector. However, investors should not despair; property as an asset class is highly resilient in the long-term and can withstand political turbulence. At Henry Clare, we welcome domestic and international investors and landlords. We are specialists in North West property investment. Our properties regularly achieve impressive combined rental yields of 13% (8% rental and 5% capital yield). Contact us now to discover the properties we have available.