Wading through the complex web of political rhetoric, we offer our take on what this ever-changing situation means for the property market.
On the 23 June 2016 the country voted 52% to 48% to leave the European Union in a closely contested battle which signified a huge shock to the political system. When the result came in the term ‘unprecedented’ was widely used by political commentators and whilst the territory was unchartered, the threat of economic uncertainty and hardship was nothing new.
Economic hardship has been something of a staple of our post-war history. The 1970’s saw our first ‘double dip’ recession as a result of increasing oil prices and the 1980’s saw rapidly increasing inflation, manufacturing troubles and riots. In 1989 the Bank of England base rate increased from 7.88% in June 1988 to 14.88% in October 19891, resulting in a record number of repossessions over the following years, reaching its peak at over 75,000 in 19912. More recently, in September 2007, the collapse of Northern Rock began a chain reaction resulting in the country’s second ‘double dip’ recession. This banking crisis was more severe and the impacts were felt globally and for much longer, with UK GDP taking five years to recover to pre-crash levels3. The question as to whether we have collectively learned from the past is debatable, however, in most cases the effects were relatively short-lived; therefore we ‘kept calm and carried on’.
Since the referendum vote was delivered the political infighting has continued to dominate, as have the Prime Minister’s key slogans. The phrase ‘Brexit means Brexit’ is a well-worn mantra of Mrs May, but what does Brexit actually mean for investors? When investing in markets, advisers are able to tailor a portfolio to mitigate issues caused by such events, the values change daily and it is easy to monitor the value and performance at any given time. This is a more complex task when it comes to the UK property market. For many, the value of a property is only truly important when you are looking to buy or sell and is indifferent to data selected to fit the opinion of narrators on both sides of the debate.
The impact on the UK property market has been one of the threats widely commented on since the Brexit vote was delivered, with Mark Carney warning in September 2018 of a 35% reduction in property values should the UK leave with no deal, putting paid to the age-old phrase ‘safe as houses’. This may be overly pessimistic with data suggesting that since the referendum, national average values have increased, albeit marginally compared with previous years. The perception of the UK has always been that we are a nation of owner-occupiers with our obsession with bricks and mortar second-to-none; however, the UK in fact has the fourth lowest ownership levels in Europe, meaning that impacts on the costs of renting and the ability to get on to the property ladder will be more important to many.
Rates of home ownership in Europe Vs population density
Source: ERC analysis of Eurostat and World Atlas Data
When considering the post-referendum impact on UK property at a national level, the initial signs are encouraging with average values increasing by around 10% to £236,800 in February 2019 compared with £214,115 in May 2016. When looking at the rolling monthly data, the most recent valuation represents a less significant increase from the relative high seen in July 2018 of £229,7764. That said, nationally we are in positive territory which given the post referendum uncertainty that has afflicted the UK is worthy of praise.
North-South divides, turning tides?
Looking through a regional lens, the North-South divide is still apparent; however, places have been traded, with the South seeing reducing levels of growth and in the case of London, a slight reduction. The South has historically boasted the highest property prices and fastest year-on-year growth, so in more turbulent times it is no surprise that they are more acutely feeling the impact. The ONS figures released in February 2019 show that in the year to December 20185 all of the Southerly regions reported growth apart from the City of London itself. They suggested this reduction is more likely due to the area being disproportionally affected by tax changes and lower net migration from the EU. Whilst the continued impact of this is still unknown, in the context of the pre-referendum May 2016 results where London reported a 9.2%6 drop, the South seems to be holding firm.
All dwellings annual house price rates of change, by English region, year to December 2018
Source: HM Land Registary, Office for National Statistics – UK House Price Index
The year-end figures show positive news for the West Midlands, which reported the highest annual increase of 5.2%, followed by the East Midlands and Yorkshire, both at 4.2%3. When compared to the pre-referendum results in May 2016 we see a reduction from 7% in the West Midlands and 8% in the East Midlands, but only a 0.2% drop from 4.2% in Yorkshire6. The results show that despite Brexit uncertainty, the Midlands and the North overall remains in positive territory.
Since the referendum vote was delivered, it is difficult to support the bleak picture of the UK property market some have painted. Nationally we have seen an increase in property values of 10% since May 2016 and in the majority of regions house prices have continued to rise, albeit at a slower rate than we have become accustomed to. The property market has so far stood firm against Brexit headwinds; however, it must be said that the potential long term impacts are as yet unknown and will inevitably be inextricably linked with the deal we are able, or not, to strike with our European neighbours.
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Daniel Porteous // Client Manager
Sources: 1. Bank of England 2. TIC Finance 3. ONS 4. Halifax 5, 6. ONS
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