UK INVESTMENT
Brexit
The effect on the London buy-to-let market ? BY JAMES GLEW
It has been less than a month since Britain ’ s surprise decision to leave the E . U ., and what a roller-coaster ride it has been . Make no mistake ; this is just the start of a story that will take many years to unfold . The new British Prime Minister , Theresa May has said she will not invoke Article 50 of the E . U . Treaty , which starts a twoyear process of withdrawal , until 2017 . The outgoing Foreign Secretary Philip Hammond warned that it could take up to six years to complete the departure from the E . U .
In a nutshell , I believe that in the short term , uncertainty is likely to discourage some domestic buyers while the weaker pound and low interest rates will encourage more foreign buy-to-let buyers to enter the market . In the long term , the outlook for the housing market will be determined by economic fundamentals .
As Brexit is only just starting to take effect , my view on the outlook for London buy-to lets will undoubtedly evolve as concrete changes are made . I believe the Brexit factors that will shape the UK housing market fall into three main areas - POLITICAL , ECONOMIC and FINANCIAL . I will continue to track developments in these areas with interest .
Here are some of the major factors that have shaped things so far :
UK ’ s new relationship with Europe and the rest of the world : Official trade statistics show that the European Union is the destination for about half of all British goods exports . The trading links are bigger if we include the countries that the United Kingdom trades freely with because they have a free trade agreement with the European Union . These agreements mean that 63 % of Britain ’ s goods exports are linked to European Union membership .
Brexit will give Britain a crucial opportunity by allowing it to broker its own trade deals with non-
European Union countries . Non-European Union countries may find negotiating with Britain easier and quicker than dealing with the European Union .
Pound devaluation : The immediate devaluation of Sterling against the US Dollar by about 8 % versus pre-Brexit levels , has created a significant interest amongst foreign buyers , looking to capitalise in this period of uncertainty . One large London agency has informed me that enquires from foreign buy-to-let investors have increased by 50 % post Brexit period .
If the pound stays low for some time to come , there is the prospect of inflation coming through , and this is turn will squeeze household finances , constrain domestic buyer demand but simultaneously causing a rise in rental demand , thereby increasing buy-to-let yields .
Interest rates to remain low for some time : Low interest rates reduce the cost of mortgages and therefore stimulate buyer demand .
The Bank of England ( BoE ) surprised markets in July by freezing interest rates . However , the BoE ’ s minutes of meeting pointed towards a likely August rate cut . This was all-but-confirmed subsequently , when BoE official Andy Haldane called for near-term monetary easing and sent the Pound on a brief drop against peers .
Indications are that the Brexit result will keep interest rates lower for longer , thus underpinning house prices .
For more info contact : James Glew CA ( SA ) : Inventure Properties James @ inventureprop . com
RESOURCES
Inventure Property
56 AUGUST 2016 SA Real Estate Investor www . reimag . co . za