Brexit And London Property

More than four years after the UK voted to leave the EU, we still don’t know what Brexit will actually look like. But with the UK charging towards the no-deal cliff edge, many homeowners and investors are anxious about the potential impact on London’s property market.

Table of Contents

Since the UK voted to leave the European Union in 2016, uncertainty has dominated the landscape. Whichever side of the debate you are on, it is impossible to deny that the resulting uncertainty has been hugely damaging for the UK. Brexit has impacted every industry to some extent. Many people are beginning to feel uneasy about the lack of long-term arrangements for when the transition period ends and what to expect as we head into 2021.

The property market is no exception. It has been keenly feeling the effects of uncertainty. Looking at fluctuations in property prices, it is clear that the market is getting jittery. The arrival of the Covid-19 pandemic has only exacerbated the tension and made it even more difficult for investors to make long-term plans. No one knows how deep the damage to the market will go, but few observers are expecting a quick and easy recovery.

Until we know what the UK’s relationship with the EU will be in the long-term and the transition period has formally ended, it is impossible to say with any certainty what the ultimate impacts of Brexit will be. However, by looking at current trends, talking to market analysts, and analysing consumer behaviour since the referendum, we can make an educated guess as to how things might play out.

Everyone agrees that the UK economy will suffer due to Brexit, but there are disagreements about the extent of the damage. A survey conducted by Good Move asked 2,000 people how much damage they thought Brexit was doing to the property market. They found that most laypeople are overestimating the impact that Brexit has had on house prices (so far). Despite this, industry insiders remain trepidatious about the future of London’s property market.

Buying Property in London Brexit

Anyone who is thinking about buying property right now needs to take into account the ongoing uncertainty. This uncertainty means that it is increasingly difficult to accurately assess whether a property trade represents good value or not. Even if you consult with professional investors and property buyers when making your choice, you have to remember that there are limits to their powers. Even the best analyst working with the best available data can only do so much to overcome the uncertainty that Brexit has bought to the market.

Despite this uncertainty, December 2019 saw a strong performance from London’s property sector. Of course, this was before Covid-19 arrived on the scene and started wreaking havoc with everything. But December 2019 saw the highest number of property transactions in a single month since the referendum. Compared to last year, sales increased by 6.8%.

Many analysts put this increase in sales down to the results of the general election, which helped to alleviate some of the uncertainty. With the House of Commons firmly under the control of a single party, the government was in a position to pass whatever legislation they deemed necessary reliably. One such policy that was widely anticipated was a reduction in stamp duty. This reduction came into force early in the year and is believed to have had some impact. In the immediate aftermath of the policy change, the volume of property sales in the UK increased.

Property Market Brexit London No Deal

At this point, it seems inevitable that Britain is headed for a no-deal exit from the EU. Despite the ongoing protestations of the prime minister and assorted ministers, who insist that they are definitely really honestly trying to get a deal with the EU, all the evidence points in the opposite direction.

Leaving with a deal would definitely be better for the property market, and for everyone else for that matter. However, with a no-deal outcome looking possible, if not likely, property buyers need to factor that into their decision-making. The potential consequences of failing to reach a deal will be far-reaching, and the impacts will be felt across the UK. A no-deal Brexit will hit every industry to some extent.

The damage to the property market resulting from a no-deal would not be felt evenly across the entire country. Some areas will inevitably fare better than others. London has traditionally been resilient to these kinds of economic shocks, and the London property market is likely to remain an attractive investment target for investors around the globe. In fact, some analysts are expecting London to benefit from a weakened pound, as would occur under a no-deal Brexit.

According to projections from the accounting firm KPMG, a no-deal Brexit would cause house prices to crash by as much as 20%. This figure represents a worst-case scenario, but even the most optimistic forecasts have the market suffering a 6% drop.

Brexit And London Property Prices

In the immediate aftermath of the Brexit referendum, house prices across the UK entered a period of stagnation. However, many analysts pointed out that such a period of stagnation was far from unprecedented. There have been similar stagnations before, and some even suggested that this was perfectly normal for the time of year. Even without extraneous factors like Brexit, house prices tend to go up in spring and then plateau until the end of the year. In 2017, a year after the referendum, the same pattern was observed.

What is undeniable, however, is the sharp fall in house prices that followed in the latter half of 2018. With the first official Brexit deadline (which was subsequently extended) fast approaching, investor confidence crumbled, and both the volume of sales and prices dropped precipitously. Since then, prices seem to have recovered. November 2019 marked the highest ever average house price value recorded in the UK.

London Property Market Post Brexit

It is hard to say what the London property market will look like after Brexit with any certainty. Until we have a more concrete idea about the UK’s future relationship with the EU, a lot of this is going to remain shrouded in mystery. House prices fell in the aftermath of the referendum and have only just returned to around the same level.

As we move into the final quarter of the year and the deadline for striking a deal begins to loom large, another collapse in prices seems likely. As we have approached previous deadlines, before their extensions, similar drops were noticed.

Brexit and Property Prices in London

According to Rightmove, spring 2021 could potentially be very good for London. Uncertainty is always bad for the property market. By the end of the year, another source of uncertainty will be removed. Even if we do end up in the no-deal scenario that many businesses fear, the markets will at least know what to expect for the remainder of the year.

Another factor that may end up working in London’s favour is the build-up in demand caused by Covid-19. There are lots of people and businesses who were planning on investing in London property but had to abandon their plans because of the pandemic. A potential deluge of eager buyers could represent a significant injection of capital into the city.

Brexit London Property Market

As soon as the 2019 general election results came in, numerous multimillion-pound deals that had been put on hold were executed in London. As soon as the uncertainty regarding who would lead the country, and how they would lead it, was resolved, investors felt confident in finalising these deals.

Some analysts are predicting that we will witness something similar in the aftermath of Brexit. According to this line of thinking, many investors will be hedging their bets and lining up property deals. But they won’t pull the trigger on any deal until they have clarity about what the future holds for London.

Effect Of Brexit On London Property Market

So far, the effects of Brexit on the property market have been largely negative. There are some silver linings to be found and it is impossible to say what the property market will look like in the long-term. Even the most optimistic analysts expect that it will take the UK some time to recover from Brexit, regardless of what form it ends up taking.

If you are considering purchasing a property in London, whether residential or commercial, it may be prudent to wait. Of course, no one can guarantee that things are going to get better. It is possible that holding out for better conditions could backfire and end with you having to make your purchase in unfavourable conditions. In the immediate aftermath of Brexit, there may be some real bargains to be had if prices do drop as expected. Any predictions about the future shape of the market are going to be complicated by the impacts of Covid-19. No one knows how this will all play out.