In June 2016, the UK made the historic decision to leave the European Union. Yet over two and a half years later, with the Brexit deadline of 29 March 2019 fast approaching, the British public are still none the wiser when it comes to understanding how the process will be managed.
No sector is immune from such uncertainty – indeed, for those involved in the property market, there is plenty of speculating as to how Brexit will affect house prices, new-build developments and even buy-to-let investments.
However, if the past decade can teach us anything about what can be expected over the coming 12 months, the long-term projection for real estate looks positive. Defying the difficult period of a recession, Brexit and a string of elections, average UK houses prices have risen from £157,000 to approximately £220,000 (according to the ONS).
More recently, Halifax’s housing index shows there is still cause for optimism; in December 2018, national house prices rose at their fastest rate in almost two decades at 2.2%.
There’s no denying that there exist some key challenges facing the property market as a result of Brexit – indeed, there are broader challenges that exist irrespective of the UK parting ways with the EU, such as the shortage of affordable housing. Nevertheless, for investors eager to take advantage of commercial and residential real estate, there are some significant opportunities on offer in the UK’s established and emerging markets.
So, looking to the coming 12 months, what are the trends likely to define the property market in both the build-up and following Brexit?
A competitive property market
Property’s performance as an asset class has been subject to scrutiny. While house prices are rising, the rate of growth has slowed. There are plenty of reasons for this slowdown, including issues of affordability and hesitancy due to Brexit. However, looking into the performance of particular real estate categories and locations, there are some important trends to take note of.
House prices in London are stagnating, but if we look to the prime central London (PCL) property market, uncertainty surrounding Brexit has not had such an impact on investment. In fact, new figures from HMRC have shown that there has been a 50% spike in the number of homes sold for over £10 million in the year following the EU referendum vote. What’s more, Savills anticipates a 12.4% increase in PCL property prices over the next five years.
Looking outside of the capital, house values have increased dramatically across some of the UK’s regional hotspots, led predominately by strong growth in the Midlands and North West of England. House prices in Birmingham, for instance, are growing twice as fast as the national average at 5.6%. This growth is being fuelled by an increasing number of people relocating to the city, spurred by the affordable housing on offer and the significant influx of investment into the East Midlands transport and infrastructure.
Cities like Birmingham are fuelling nationwide house price growth, and importantly, despite the immediate challenges posed by Brexit, demand for real estate will contribute to the long-term increase in average house prices – Savills anticipates house prices in Britain will rise by 14.8% from 2019 to 2023, driven by regional property markets like the Midlands.
Taking advantage of real estate opportunities through specialist finance
The UK real estate market is inherently competitive, and for those seeking to invest in bricks and mortar in 2019, access to fast capital is vital.
A study by Market Financial Solutions last year found that 31% of UK adults who have had an offer accepted on a property in the last ten years had experienced a deal falling through before completion. Of those, a third (33%) said the reason their deal collapsed was that they encountered problems due to delays from their mortgage provider.
Restrictions on mortgage lending continue to present a challenge for homebuyers. And with the shadow of Brexit looming over the UK’s property market, traditional banks remain hesitant to lend – resulting in a slowdown of mortgage approvals across the country.
According to figures from UK Finance, the number of mortgages approved by Britain’s high street banks fell to a seven-month low in September 2019, a month after the Bank of England raised interest rates. Significantly, this represents a 10% year-on-year decline and highlights the growing challenges facing those looking to obtain finance through traditional avenues.
To navigate the real estate market, fast access to finance is valuable for buyers keen to move towards completion quickly without risking a potential acquisition falling through. If indeed Brexit does dampen investor appetite throughout 2019, those seeking to take advantage of real estate opportunities will need to consider new ways of accessing capital. Bridging loans are one such example, and with the number of specialist lenders in the UK rising, borrowers and brokers have a wealth of different tailored loans to choose from.
Having a long-term view
As we prepare for Brexit, a long-term view is required to properly understand what impact it will have on the real estate market. Projections over the next five years see prices rising at a healthy rate, demonstrating the resilience of real estate as a safe and secure asset class.
With demand pushing prices higher, those looking to property need to ensure they are adequately positioned to take advantage of new opportunities as they arise. This requires fast access to capital, and a keen eye for markets demonstrating significant capital growth potential.
Paresh Raja is the CEO of Market Financial Solutions (MFS), one of the UK’s leading bridging loan providers.
Paresh Raja, CEO of Market Financial Solutions