By Paresh Raja, chief executive, Market Financial Solutions
Peter Wilding, the founder and director of the think tank British Influence, is credited with coining the term Brexit back in 2012.
Since then, the word has seldom left the media spotlight, and in the past five years it has consumed a huge amount of attention within virtually every industry.
The real estate sector is certainly no exception. I remember the build-up to the EU referendum in June 2016 clearly; not a day went by without a different article predicting what Brexit would mean for house prices, property investment and construction activity.
The predictions offered varied widely, with so much of the rhetoric surrounding the referendum straying into extreme views. And there was no lack of people, businesses and media outlets stating that Brexit would prove a hammer blow to the property market.
For example, George Osborne, who was then Chancellor of the Exchequer, warned in May 2016, just weeks before the vote, that UK house prices could tumble by up to 18 percent if the country voted in favour of Brexit.
Paresh Raja
Deutsche Bank and credit rating agencies S&P and Fitch pushed a similar view, suggesting that voting to leave the EU would instantly reduce the value of UK houses.
On 23 June 2021, five years will have passed since the EU referendum. It begs the question, then, how has the market actually fared in this period?
Property prices rise while uncertainty remains
As we now know all too well, the referendum was just the beginning of the Brexit debate.
Over the past five years, political and economic uncertainty has remained, with no insight on what shape Brexit would take until late December 2020. We are still coming to terms with the reality of the process.
Yet this uncertainty has done little to dampen performance of the UK property market – the Office for National Statistics’ data shows that average UK house prices rose from £212,887 in June 2016 to £256,405 in March 2021.
In my view, the political and economic turmoil that has abounded in recent years has strengthened the property market. Yes, in some instance it might cause hesitancy among investors, but the view of bricks and mortar as a safe haven asset for long-term capital growth means that many still gravitate to this market.
Official data explains why investors would hold such stance – the average UK residential property value has quadrupled between 1991 (£57,000) and 2021 (£255,000).
There are two further factors to explain the relative buoyancy of the property market since the EU referendum. The first is that there have been extremely low interest rates; the Bank of England’s base rate remained under 1 percent for 12 years now, well below the levels prior to the global financial crash (the base rate in July 2007 was 5.75 percent).
Secondly, the ever-present issue of supply shortages continues to push prices upwards, with demand greatly outstripping the amount of available housing.
Combined, these market factors have ensured house prices have risen and interest in property investment has remained strong.
Reforms in the BTL sector
However, the property investment industry has undoubtedly faced its challenges in the past five years, albeit challenges that are not related to Brexit.
In 2016, an additional 3 percent stamp duty surcharge was introduced for second homes. This was followed in 2017 by the tapering down of mortgage interest tax relief. Then, in 2018, new regulations were brought in for houses in multiple occupation (HMOs) followed. And in 2019, a motion was tabled to abolish section 21 of the Housing Act 1988, preventing unfair evictions.
Many of these changes have been wholly positive. Most notably, the changes to HMO regulations and legislation on evictions will better protect the rights of tenants and push the standards of rental properties upwards.
For the buy-to-let market, however, the additional taxes have forced them to consider how best to manage their portfolios. Nevertheless, at Market Financial Solutions we have still seen consistently strong interest in BTL investment opportunities, particularly in the past year thanks to the stamp duty holiday and rocketing house prices.
Recent data highlights that the BTL market, like the property market as a whole, remains buoyant. For example, the National Residential Landlord Association’s quarterly index shows that there were increased levels of confidence among landlords in both Q4 2020 and Q1 2021.
There has also been an increase in rental returns, with the HomeLet Rental Index showing that in May 2021 the average rental price for a new tenancy in the UK was £997 per calendar month, which was a 4 percent year-on-year increase.
A period of remarkable progress
The period since the EU referendum has not been smooth sailing. After all, over the past five years the UK has had three different Prime Ministers, voted in two general elections, experienced a drawn-out process of negotiating then implementing a formal Brexit process, and then had to deal with the Covid-19 pandemic.
However, the progress witnessed within the property sector has been remarkable. House prices have continued their march upwards, while BTL investors have adapted positively to the various reforms that have been introduced since 2016.
As we emerge from the worst of the pandemic and better get to grips with the realities of Brexit, it will be fascinating to see how the property market continues to evolve. For me, the last five years have demonstrated the market’s immense resilience, and whatever the coming months and years have in store, I expect this to remain the case.
Paresh Raja is the founder and chief executive of Market Financial Solutions (MFS) – a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.
