So, the “big day” has finally come and gone, bringing months of campaigning to an end. The die has been cast & the UK has voted to leave the European Union. So how will this affect UK PLC and the London Housing Market?
Over the last 24hrs I have given deep thought to the reality of Brexit and whilst it is widely accepted that we are in unchartered territory, I have come to the opinion that things are not as uncertain or as unpredictable as the market may perceive them to be.
Just a few of the EU trading facts: In April 2016, the total trade exports from the UK to the EU was £12bn, whilst the total trade imports from the EU was £19.1bn, leaving a trade deficit of £7.1bn. The total trade between the blocs for 2015 was over £352bn, this has increased from £319bn in 2008*. In very simple terms then, it is in the interest of both trading partners to ensure that they are able to continue to trade in the same open & free way that they have been doing for the last 40 years. The EU as a whole (UK Included) has been through a period of extreme volatility in monetary markets since the crisis of 2008 and I suspect that there is very little risk appetite for any further volatility on either side. As the dust settles on the decision to leave, I anticipate a more coherent plan will emerge to stabilise markets and ensure continuity.
Market Demand: Having traded through many changes in the market, including the Financial crash of 2008, the Eurozone crisis, the Greek Debt crisis, the slowdown in Asia, changes in Government across the continent and stamp duty changes over the last 10 years, on almost every occasion one investment has bucked the trend & has consistently outperformed the FTSE All Share index – London’s Residential Property Market. With a chronic shortage of housing stock within the Capital not seen since the post-war era, developable land being at a shortage as well as a premium & domestic population growth continuing on an upwardly trend, the issue of demand outstripping supply is only set to become more acute.
Interest & Lending: David Tinsley, UK Economist at UBS has said that he expects two interest rate cuts over the next 6 months and Mark Carney, Governor of the Bank of England has seemingly endorsed that position by confirming that he expected rates to remain low for some time. This will be a welcome boost for first time buyers who will no doubt be looking to capitalise on exceptionally cheap lending. HSBC have since launched a 5 year fixed rate at 1.95% and a 2 year fixed rate at 0.99%, the first of its kind in the UK. With rates set to remain extremely low in the short to medium term, savers will be looking for secure investments producing a solid return. A well placed property will see between 4% – 6% return on investment, with very few of the market risks associated with the financial markets.
Infrastructure Investment & Regional Development: Being based within a redevelopment area of London gives perspective to the transformative effect of private investment & Govt infrastructure investment. With the delivery of Crossrail due in 2018, the launch of the Asian Business Port, the Redevelopment of Greenwich Peninsula, Reinvestment into Canary Wharf Group, Westfield Stratford & the proposals over increased air capacity at London City Airport, East & South-East London have been regularly reported as the property hotspots of the Capital.
The combined effects of a severe housing shortage, population growth, cheap lending, strong returns, urban and structural infrastructure investment makes the housing market an attractive proposition and a solid investment vehicle, relatively insulated from the strong headwinds in the markets.
On Brexit, my overriding feeling is that voters will be waking up in the days & weeks to come with a feeling that despite the hype, or in some cases jubilation of where we have ended up, in fact very little has changed and of course the world will go on as usual.
So, my advice is a nostalgic return to 1939 and the famous poster that symbolises everything British & that is to “Keep Calm & Carry On”
Madison Brook International
*Source: HMRC Overseas Trade Statistics