Brexit, Property and your Investment

Our member support team have reported a considerable uptick in questions related to Brexit and the conjecture of  an accompanying Brexit property crash over the past few months.

This is hardly surprising. It’s the proverbial elephant in the room.

Now we’re not going to share an opinion on the merits (or otherwise) of our ongoing relationship with the EU. We’ll leave that can of worms alone!

However, whilst Brexit (to many of us) is starting to sound like white noise, it’s looming on the horizon, and it could have lasting repercussions for the UK – whether you voted for it or not.

With the deadline now in plain sight, people are starting to worry about the implications that it could have on the UK’s property market. There have been many predictions (some of them scarier than others) about what could potentially happen.

However, it’s important to acknowledge that nobody is certain as to what reality Britain is going to face, or whether Brexit is going to happen at all. It’s all just conjecture.

In recent months there have been numerous reports outlining how Brexit is going to be a catastrophic state of affairs for the British property market. As you may have already heard, various news outlets have outlined that the UK could suffer from a 33% fall in house prices.

This statistic had many of us  quaking in our boots; especially considering that it had come straight from the mouth of the Bank of England’s own governor Mark Carney. The fact of the matter is, these statistics were not actually a forecast for an inevitable future, but rather a worst-case scenario imagined by the bank through one of their routine ‘stress checks’ (unlike what the national press reported).

These checks are often carried out in order to see whether financial institutions are capable of withstanding extreme financial changes. Speaking in an interview whilst in Dublin in late 2018, Carney stated that these tests were a measure taken to ensure that the country’s biggest banks were able to consistently to meet the financial needs of the country:

“Even through a disorderly Brexit, however unlikely that may be.”

He continued:

“Our job, after all, is not to hope for the best but to plan for the worst.”

UK Property Bites Back

Brexit Property Putting aside the ‘journalistic licence’ attributed to the Carney quote, many people have been quick to jump to the defence of UK property and describing how it withholds the potential to weather the Brexit property storm.

Andrew Smith, chief investment Office of the TM home investor fund stated that if residential property markets are subject to a crash, that the sector’s typical defensive qualities relative to equities and commercial property would of course still be applicable to Brexit. He said:

“The health of the UK economy is just one factor in determining house prices. Consumer demand and housing supply is also crucial, regardless of the state of the economy. People need somewhere to live and in the UK we are simply not building enough houses to keep up with demand from a growing number of households. Half of owned houses have no mortgage, and a fifth of all households pay rent. In the event of a crash in house prices, rents are more likely to rise than fall – RICS recently predicted that rents will increase by nearly 2% over the next twelve months and 15% in five years.”

Another report from The Royal Institution of Chartered Surveyors (RICS) maintained that house price growth remains consistently strong.  This is especially evident in the North of England, and can be attributed to, in part, to an ongoing lack of housing to meet the demand of the British public.

RICS chief economist Simon Rubinsohn said: “While a combination of a lack of stock and some level of uncertainty, both relating to the interest rate outlook and Brexit, has had an impact on activity, the overall picture in these areas is still encouraging.”

brexit propertyBrexit and House Crowd Developments

Whilst on the subject of British property, lets examine the implications that Brexit may (or may not) have for our North West property developments.

With the North West’s consistently appreciating property values, the region continues to outperform the rest of the country. In fact, research from the estate agency Cushman & Wakefield indicates that the region’s house price growth is considerably higher than anywhere else in the UK.

To put things into specifics, Manchester’s average house value has risen by 11%. This, when contrasted to the national average of just 6% really puts into perspective the scale of the region’s current prosperity and it’s potential to withstand any economic fallout that comes along with Brexit.

According to Buy Association Manchester’s property values continue to ameliorate in value. So much so that the city’s house prices are posited to rise to 57% by the end of 2028.

Julian Cotton, the associate director of Cusham and Wakefield noted the following:

“Seen as the regional centre for finance, commercial and retail with world class transport links, Manchester is now one of the best cities in Europe to do business in. Major corporations – Co-operative Group, Amazon, Royal Bank of Scotland, BBC and ITV – have all chosen to establish key operations within the city.

House Crowd Developments’ focus is on North West Developments, the value of which is much less likely to be affected by Brexit than developments in London and the South East, if the trends mentioned above continue. The underlying security of your investment therefore may offer better protection than it would do if it your investment was made in developments in other geographical areas, however there are no guarantees about this, or that property values will not fall generally. As we mentioned earlier, no-one knows for certain what will happen.

Bridging Loans

Things can go differently than forecast which is why we do everything we can to mitigate against any potential losses.

As you will be aware we offer loans up to 75% Loan To Value. If you are worried about Brexit you can choose to invest in individual peer to peer bridging loans, with a lower LTV to give you a greater cushion should house prices fall.

But to put matters in context, bear in mind the worst post-war reduction in house prices happened after the banking crisis of 2008, when UK properties fell by an average of 11% before recovering.

Alternatively, for those who don’t have the time to choose their preferred investments or simply want a quicker and alternative means to do so, our automated investments products including  our IF ISA allow members to invest in a wide selection of carefully vetted loans without the hassle of trawling through each individual one. By diversifying your capital over a range of secured property loans (which can be any mixture of bridging loans and development loans) with different LTVS and different rates of interest, your exposure to risk is mitigated in the most practicable way possible.

A Few Final Thoughts

Whilst its still unclear as to what will happen as a result of Brexit, for every downside there is an upside For example Property Wire recently reported:

“The uncertainty surrounding Brexit has subsequently caused a fall in value of the pound, meaning UK property in now as much as 12% cheaper to new investors. This has led to an increase in interest from overseas investors.” Price said.

Despite the potential drop in value of UK property, the thirst for investment is still as strong as ever; this, in no small part, will continue to drive the development of the UK property market through thick and thin.

Furthermore, when trying to paint a picture of our future, it’s important that we look back through our history. Over the last 100 years, the UK has been subject to a myriad of economic crashes. War, depression, you name it- the UK’s property market has come through the other side relatively unscathed. In the last 100 years, British property has (for the most part) remained on a consistent trajectory, and has gradually increased in value over time: 47,000% to be precise!

One final aspect to consider is the ever increasing demand for property in the UK. Supply and demand is a very powerful concept. With life expectancy continually on the rise and more people than ever living in the country, the number of houses that are needed to facilitate the population is only ever increasing. According to data taken from the Office For National Statistics, the UK’s population has doubled over the course of the last 140 years. By the year 2041 it is estimated that there will be almost 73 million people in the UK… You do the maths!

Your capital is at risk and interest rates are not guaranteed. Read our important information page and risk warning pages to learn more. ase read our Important Information page and Risk Warning before investing.