In this blog, I want to explain what I believe will be the effect of Brexit on the UK property market. How you can prepare for that and also profit from the situation as well. Now Brexit is a complete mess. There’s no question, because of all the uncertainty, a lot of people are waiting to see what happens.
Frankly, nobody knows what’s going to happen and what will be the impact of Brexit on the UK property market. If we get a deal, or don’t get a deal, there’s massive uncertainty. There are a couple of challenges.
Brexit & The Value Of The Pound
Obviously, we’ve seen the pound being absolutely smashed at the moment. The pound is very low compared to most currencies. I believe the pound could probably drop further when we leave the European Union. Now this has several impacts. Obviously, for the average man in the street, if you want to go overseas and go on holiday, that’s going to be more expensive.
But the most important thing is that if we are importing goods into the UK, they’re going to cost more than they do at the moment. This is if the pound goes down further. So the cost of living could go up for the average person, which is generally not a good thing.
The opposite argument to that is, with businesses that export goods to Europe and the rest of the world, if the pound is low, it makes UK products cheaper. So businesses that export might do quite well. Having said that, if there aren’t any trade agreements with Europe, there might be lots of extra taxes.
This means those products are no longer as competitive as they might be if there’s agreements in place. We don’t know what’s going to happen, there’s massive uncertainty around this.
Now let’s think about the property market. So because the pound is very low, the UK’s actually quite an attractive place for foreign investors. This is because it’s like all the properties are on sale, because the currency is much cheaper.
“So because the pound is very low, the UK’s actually quite an attractive place for foreign investors”
In the domestic market, we are seeing massive uncertainty, many investors are deciding to wait to see what happens after Brexit. So the demand is not as high as it has been over the last few years.
Early Retirement For Landlords
We’ve seen the property market generally boom over the last ten years. In London, the last couple of years, it’s actually peaked and come down a little bit. I believe that’s partly due to the uncertainty of Brexit. But I think when anything goes up too much, it always comes down and balances off. Yet, we noticed that at the 50 plus pin meetings around the country, more and more landlords are talking and thinking about retiring early. One of the reasons is Section 24, which came in in April, 2017. It was a change in the way that we as property investors are taxed. Now it’s phased in over four years. But what it means is anyone who owns property in their own way and anyone who’s a higher rate tax payer, are going to be paying a lot more tax over the next few years.
So because of that, many long term landlords have thought “You know what, “I don’t know if it’s worth the time, the hassle, “to have my property portfolio”. Their exit plan was probably to retire at some point in the future, and just live on a big pile of money. But now some of those people are saying “Let’s bring that decision forward, “and maybe sell up properties sooner “than we were planning to”. So this means we’re seeing more and more landlords putting some of their properties onto the market.
So we haven’t got as much demand at the moment, but an increased supply. I think we’re going to see property prices fall further when it comes to the effect of Brexit on the UK property market. Now I don’t believe we’re going have a crash like we had in 2008, but I just don’t know. I mean 2008 was very unique circumstances. Around the world banks were doing irresponsible lending, investors were doing irresponsible borrowing. It got to a point where many people just couldn’t afford to keep up their mortgages, and it all collapsed with a toxic debt.
So everybody stopped lending, and people couldn’t buy even if they wanted to. All the property prices came down. They’d been booming for the last decade before that anyway.
“But here’s the thing, if you wait until prices hit the bottom, and everyone thinks they’re at the bottom, it means prices can only go up”
What Does This Mean For Me?
So property prices have been going up for the last 10 years, we’re due a little bit of a correction. I think the massive uncertainty around Brexit and Section 24 is probably going to help propagate that slight correction in the market.
So what does that mean for you as an investor? Prices might come down further. Is it wise to buy now, or should you wait until they hit the bottom? Well, it’s a great question. But here’s the thing, if you wait until prices hit the bottom, and everybody thinks they’re at the bottom, it means prices can then only go up. So if an owner’s got a property and they think it’s going to go up in value, they probably won’t be prepared to sell it as a discount as much as they would now. If they think their property could fall in value.
So some people are quite keen to dump their property, get rid of it. This is because they think there will be a crash like the 2008 property crash. So therefore, I would maintain that right now, there’s a real opportunity. As long as you know what you’re doing. Also as long as you’re buying for the long term. It would not be a good strategy to buy a property, to renovate it, with the intention of flipping it and selling it on. If you buy it now, it might well be less, worth less in six or twelve months’ time. However, if you’re holding for the long term, and in my book, Property Magic, I talk about the golden rules, you follow the golden rules, i.e. you buy in an area with strong rental demand, you make sure there’s positive cash flow, and you’re looking for long term investments.
Well, it doesn’t really matter if you buy now and the value goes down in six months, because you’re not selling. You’re holding onto it for the long term. As long as you can rent it out easily, and it gives you good, positive cash flow, why on earth would you sell that asset? So as long as you can hold, and you can bear out any short time dip in property prices, I would say now,is a great time to be buying property. As long as you know what you’re doing.
A Great Time To Be Buying
It is not a good time to sell, but a great time to be buying. The other thing is, we have no idea what’s going to happen to banks and financing after we leave the European Union. So if you’ve got properties and you plan to refinance those properties, and use that money to buy more properties, many of the investors I know are refinancing as quickly as they possibly can. They are getting that money ready, so they’ve got a cash pot ready to use to buy cheap properties if the market does crash.
If you’re planning to refinance, it’s probably better to do it sooner rather than later, because if the banks do change policies, or they get far more cautious, because the market’s coming down, it’ll be harder to refinance and get that money out. So I suggest you absolutely want to do it now whilst you still can. Don’t wait until you find a great deal, make sure you’ve got your money available and ready to move.
“So having a small correction now is not an issue, because we believe long term, property prices will come up”
So in summary, when it comes to the effect of Brexit on the UK property market – I think massive uncertainty means massive opportunity. This whole Brexit thing is bad news for the UK, and certainly the way it’s been handled is really bad for the UK. But no one knows what’s going to happen.
Rather than sitting back, and just waiting, educate yourself, go out there, find some really good deals right now. Plan to hold them for the long term. Remember, the fundamentals of the UK are that we have a growing population. Even if we flood the tunnel, and pull up the drawbridge, and no one else comes into the UK, we still have a growing population. Thanks to increased birth rates and longer life expectancy, we’re living longer, so over time the population’s going up.
Now we have a limited amount of accommodation, that means over the long term, both rental and property prices have to go up. But they don’t always go up, it is cyclical. So having a small correction now is not an issue, because we believe long term, property prices will come up. That’s why we’re buying for the long term.
Remember the property fundamentals, don’t worry about short term news, no matter how bad it is, the long term UK is a great place to invest.So for those who wanted to know what the effect of Brexit on the property market is, I hope this blog has been useful.
6th Revised and Updated Edition
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