We woke up this morning to a new Britain. A Britain in which 51.9% of the public have voted to leave the EU. The global share and currency markets have reacted and the Prime Minister has already expressed his intention to step down in a few months time. This is indeed the most important political event in modern times.
So. What happens next? None of us really know. So, rather than speculate about what may or may not happen when article 50 is invoked, we should look at the facts, avoiding the temptation to spin or scaremonger.
The UK economy is in an incredibly strong position. Since the recession, the Bank of England has worked hard to ensure that banks and lenders have cash reserves and assets which protect them against any economic challenges. Mark Carney has worked hard to strengthen the positions of the UK banking sector, resulting in an asset reserve of over £600 billion. Analysts have worked on stress tests based on a much more severe scenario than the one we find ourselves in today. The financial position of the UK is therefore secure and protected.
People still need to move and our position within the EU won’t affect this. Whilst the FTSE and money markets are reacting quickly to the vote, this has absolutely no bearing on the day-to-day motivations for moving. Normal hard-working families still have motivations that are way more important that our position within Europe. People will still get married, have children and need to get them into the best schools, get divorced and have bereavements. There will always be a fundamental need to upsize and downsize. The three D’s; Death, Divorce and Displacement are inevitable driving factors. So, those who are looking to buy for emotional and family reasons have those same motivations today as they did yesterday.
For those who are currently part way through a sales transaction, the factors that drove their initial decision to sell or buy are still in place. The outcome of the vote has no bearing on their reasons for moving and as such there is no reason to change their minds about buying or selling. Besides, history has shown us that the property market has proved fundamentally resilient. Since the Second World War, house prices have doubled in value every 14 years. If you consider all the economic and political challenges this country has faced since the 1940’s, this is just a small blip rather than a seismic shift.
The mortgage market is in a much better place today than it was. The MMR regulations have ensured that lending criteria is tightened, thereby reducing risk for the mortgage providers. Whilst there may be some short-term challenges to these criteria, those with good credit history and stable incomes will still be able to secure mortgage finance and there may even be a reduction in the base rate before the end of Q4 which will allow those looking for a mortgage to borrow more or reduce their payments. In addition, those who are not thinking of selling can benefit from extended fixed rate mortgage products at historically low levels.
The private rental sector will continue to grow. There is still a housing shortage. Most young people will still not be able to get on the property ladder until their 30’s. More people will decide that renting is simply more convenient than buying. Some Landlords may decide that now is the time to continue to maintain or increase their portfolio rather than liquidate their assets. This will see more supply in the coming months to meet with this demand, particularly in London and the South East. Only half of the Landlords in the private rental sector have mortgages on their portfolio, which makes the short-term financial implications minimal, and those with mortgages will benefit from low interest rate fixed term deals at increasingly competitive rates for those with low LTV assets.
Over half of the UK electorate are happy with this decision. This will mean that over half of the UK will feel more positive sentiment about their future than they did yesterday. Sentiment is important as it drives confidence to spend. Compare this vote with the general election in 2015. Over 17m people voted to leave the EU yesterday, compared to just 11m who voted for a Conservative government. The UK is happier today than it was yesterday, as more people got the outcome they wanted. This will have a positive effect on the sentiment of the country.
In summary, the fundamental drivers of the UK property market haven’t changed. Our future isn’t determined by our membership of the EU. We’re a much stronger and resilient nation than that. We have a stable economy, record low inflation, interest rates and unemployment and over half of the people who voted are happy with the outcome. Whatever the short-term knee jerk reactions of economists, politicians, commentators and the media people will always need a roof over their heads, whatever the political circumstances.