On the 29th of March 2019, the UK will leave the EU. There are several key areas of concern across every sector of the country, but what does Brexit mean for UK property, and how is the market confronting the challenges?
In less than 12 months, Britain is scheduled to leave the European Union, following a hard-fought referendum back in June 2016. The negotiations are well underway, with progress being made on key issues, such as the duration and specifics of the transition period, citizens’ rights and future trade deals.
Despite the pervading uncertainty and cooling activity, investor confidence and growth projections for the UK’s property market remain strong, supported by dwindling supply and climbing demand.
2018 is the year when decisions on Brexit must be made, and property investors prepare to adjust to a new status-quo. But is the UK’s post-Brexit future still unclear, and what does it hold for those investing in UK property?
The country has been on something akin to a rollercoaster since Prime Minister Theresa May invoked Article 50 last March, serving the official notification letter to the European Council that formally began the withdrawal process.
Following this, there have been various summits, a gamble of a general election, and the agreement of a vital transition period – which will begin after the UK’s official departure in March 2019 – all aimed at solidifying the UK’s new status in Europe.
While uncertainty is set to dissipate in the final year of negotiations before the UK exits the EU, the property market, like many other industries, has held strong since the referendum in June 2016 – defying expectations.
Despite house prices and rental growth slowing in recent months, the significant falls in property values projected in the wake of the referendum have failed to materialise.
According to data from Your Move and LSL/Acadata, annual house price growth in February 2018 remains positive at a modest 0.6%, while data from the Office for National Statistics (ONS) found that rents increased by 1.1% annually over the same period.
But if Brexit is not behind the deceleration in growth, what is?
Fundamentally, house price and rent growth in the UK is governed by the imbalance between the supply and demand for properties, with this current slowdown forming a natural part of the property cycle.
As housebuilding construction activity remains subdued, owing to high materials costs and a chronic labour shortage, the supply of homes in the UK continues to fall far short of demand, pushing prices up in a competitive, high demand market.
Yet, this growth has started to cool as property becomes increasingly unaffordable for many prospective buyers. With the cost of purchasing a home too high, many households are turning from the housing market and towards the more reasonable rates available in the private rented sector.
As a result, home sellers are having to be more competitive with their prices in order to attract buyers, despite estate agents registering fewer homes for sale in February, which has caused a modest drag on asking prices.