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Some thoughts on the EU Referendum

  1. 03 June 2016
  2. By Rosie Rogers

Reallymoving.com looks at what a Brexit vote could mean for the UK property market. 

It’s the debate that has been dominating the airwaves, social media, newspapers and TV news channels in the last few months.   Unless you’ve been living in a cave since February, you will now know that the referendum on whether Britain chooses to leave (Brexit) or stay part of (Bremain) the European Union takes place on June 23. 

Both sides have been accused of scaremongering and exaggerations – the Leave side accuse the Remain side of Project Fear, while the Remain side accuse the Leave side of Project Fantasy.  Many have complained that any rational debate has been lost in Tory in-fighting and arguments about the straightness (or otherwise) of the UK’s bananas.

Away from all this silliness and political point-scoring, though, there are some very serious matters at hand. Not least the effect a possible Brexit would have on the UK property market. 

In the event of a Brexit, it could become trickier for EU nationals to stay in the UK due to an extra focus on reducing migration from EU countries.  This, in theory, would reduce both the number of renters (residents from non-UK EU countries are more likely to rent privately) and the number of buyers, subsequently reducing the demand for house purchases. 

The knock on effect of this, however, could be a surplus of rental properties.  This would have implications for landlords who would suddenly find it more difficult to fill their empty properties. If they are unable to recoup the costs associated with letting out a property, they may decide to withdraw from the market.  Conversely, this may help renters and should create a downward pressure on rent costs rather than the current costs raising at a rate that is higher than inflation.

One conclusion from this might be that landlords opt to exit from the rented sector.  Thus reducing supply in the public rented sector, meaning renters would be left in the same position as they are now – demand outstripping supply; higher rents as a result.

Should we Brexit and the UK becomes a less attractive place for EU residents to live and work, there will also be fewer EU residents purchasing in the UK.  Fewer buyers in the purchasing funnel would have a positive effect on the South East market, where competition is particularly fierce, by helping to cool house price inflation. 

On the other hand, it could create a negative effect in parts of the country with a less active property market, such as Blackpool in the North West or Middlesbrough in the North East, which have still not recovered to pre-2007 prices. 

Conversely, many experts believe that the value of Sterling would fall if we chose to leave the EU – at least in the short-term – which could make the Euro, Dollar, Yen and Yuan stronger and therefore the UK would become an easier investment choice for foreign investors.  On the flip side, a drop in sterling may mean London’s safe haven status could be put at risk by a Brexit, detering overseas purchasers elsewhere. 

Some commentators believe the fall in the value of sterling could be as much as 20% if the UK votes to withdraw, while others argue that a vote to Remain could help to give the pound a healthy bounce back from its current sluggish performance (not helped, of course, by the uncertainty of the upcoming referendum). 

While talk from the Bank of England and the Treasury about sliding back into recession should be taken with a hefty pinch of salt, there does seem little doubt that the economy would suffer a sharp shock – in the short-term – if we vote to Leave. 

The Leave side say the economy will eventually recover and be stronger in the long-term. The Remain side say the opposite, arguing that economic uncertainty will have an impact on jobs, mortgages, house prices and even the cost of a family holiday.

One thing that may not sound especially relevant to the property market as things stand is procurement arrangements, but these will be much more important in a few years’ time with self-building set to double by 2018

Leaving the EU would change these arrangements, ensuring that getting hold of house building materials s- uch as those lovely, Polish-engineered sash windows - may not be quite as easy as expected with new importing rules to be followed.  

In addition, finding the labour to help people carry out their self-build projects would also become more challenging after a Brexit vote, with restrictions on the free movement of people possibly leading to a skills shortage in the construction sector.  While the number of British-born nationals in construction-based jobs is falling, one in 20 construction workers were born in non-UK EU countries.  Removals companies may also be affected by a slump in the strong labour force provided by so many continental Europeans.

The UK’s ability to build houses currently relies heavily on migration from EU countries, so both self-builds and other major housebuilding projects could be put in jeopardy if the skills and experience aren’t there. 

The mortgage market, too, could face a complete overhaul if we Brexit. Some have said interest rates will rise, which would make the cost of a mortgage more expensive, while others have questioned which mortgage regulations will be kept if we leave.  Much of the EU regulation and legislation regarding mortgages are already intertwined with UK law, but a post-Brexit government could decide to change this. 

Lending could also be affected, but there is knowing for sure what impact a Brexit would have on the housing market or the UK economy.

Much of what we’ve heard in this debate has been conjecture, spin and hyperbole – the important topics swept aside in favour of flowery rhetoric and scare stories. 

But, effectively, it all boils down to one fairly basic point: no-one knows for sure what will happen if Brexit occurs, all that can be done is projections, predictions and educated guesses. There are simply too many variables at play to say things for definite.

As with a general election, it is a case of waiting to see what happens. If we Bremain, life will go on largely as it was before. If we Brexit, things are less clear-cut.

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