After four and a half years of talks and negotiations, the United Kingdom and European Union reached a Brexit deal on 24 December 2020. Although a momentous occasion and marking the end of seemingly endless negotiations, the deal’s impacts have yet to truly materialise. As it stands, local British homeowners and overseas investors alike are keeping a close eye on how it affects the property market. With the nine-month long stamp duty holiday coming to an end in March 2021, there remains strong interest in the property market – so accurately predicting the consequences of the Brexit deal is a multifaceted and detailed task.
At present, there are several different schools of thought regarding the consequences of Brexit on the property market. One is that the Brexit deal being finalised will not hamper the surge in property prices due to the resilience this sector has shown in the wake of global chaos. This theory is supported by a study from Oxford Economics predicting the real estate sector will outperform all other major sectors including the information and communications sector.
Another school of thought is that a combination of the stamp duty holiday ending, the post-coronavirus economy and Brexit will result in a rise in unemployment and subsequent drop in activity in the housing market. This is not negative news for foreign investors who will then have a stronger rental market (people still need somewhere to live, despite not being able to buy) and, potentially, a lower entry price point. In fact, another study from Oxford Economics predicts that foreign direct investment in the UK will rise above every major European country bar Portugal from 2021 onwards.
Whichever outcome, there are several key considerations to come to a reasonable conclusion. Read on to find out how we think the UK housing market in 2021 will be impacted by the agreed Brexit deal.
Prior to the coronavirus, Brexit was at centre stage when it came to predicting property prices in the coming years. But the consequences of Brexit are almost trivial compared to the effects of COVID-19 on the UK property market and the wider economy. With the stamp duty holiday and furlough scheme set to come to an end, lenders have been increasingly reluctant to offer mortgages to those with lower incomes and smaller cash reserves.
According to The Telegraph, the recent Brexit deal could bring back some much-needed economic certainty, just as these financial measures come to a close. If this encourages more mortgages and loans, then the property market would experience a rise and become more stable when the economic climate settles – making it both appealing for international investors and local British owner-occupiers alike.
The COVID-19 pandemic has affected almost every corner of our life – from nation-wide lockdowns to revealing cracks in healthcare systems. It has also profoundly impacted the UK property market: since March 2020, the Bank of England dropped the base rate to an exceptionally low 0.1%. This has had a knock-on effect on mortgage rates, making it far cheaper to secure financing loans.
To negate any potential negative impact of Brexit on the housing market, there is now even a possibility that the Bank of England could lower the base rate into negative territory. Such a low base rate and fair mortgage deals would encourage more people to invest and withdraw loans, rather than save their money. Should this be the case, expect to see a spike in growth for the UK property market.
With the stamp duty holiday and furlough scheme ending in March and April of this year respectively, the future for many seems too uncertain to make bold financial decisions. If the property market slows down because of this – and other wider economic difficulties like rising unemployment and inflation – it could present a window of opportunity for international investors looking to get a foothold on the UK property market ladder.
The UK property market has historically been one of the most stable investment choices, consistently providing long-term positive returns. Regardless of the stamp duty savings that investors can make by purchasing before April, investors locking in a mortgage deal and investing in 2021 will see significant growth in their capital in the medium- to long-run. This, combined with strong currency conversion rates from countries like Hong Kong and prospective growth after COVID-19, presents a promising window of opportunity.
In sum, Brexit’s effects on the UK property market are still yet to materialise. However, mounting evidence points towards Brexit having a stabilizing and positive effect on the property market for foreign investors in the medium- to long-run. With the interest base rate at a historic low – and with negative rates a real possibility – savvy investors could be further encouraged to find mortgage deals and negotiate personal loans. Should this and the recent Brexit deal stimulate the market enough, international investors will have plenty of opportunities to make sound investments for the future that prove invaluable as the economy recovers.
We have to ask ourselves, if the UK property market can see growth during the deepest recession in living memory through a global pandemic… what could stop it now?
Get in touch with us today if you are interested in learning more about UK property investment, the impact of Brexit, and how to make sound property investment choices.
WRITTEN BY IP GLOBAL
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