In the two weeks following Brexit, Britain’s economy is experiencing profound changes as the world comes to terms with the UK leaving Europe. With a weakening pound and steady demand in London, new regions look set to prosper from greater inward investment.
In the last two weeks we have seen the UK’s economy experience major upheaval as the consequences of Brexit start to take shape. The markets are still readjusting, with the pound suffering in the cash markets and equities and property funds suffering some huge losses. The commercial property market looks threatened, but overall, the residential property market appears to be largely unaffected by the new economic order. Demand is likely to remain high, which will maintain prices.
The London property market has been in some doubt for a while and analysts had predicted that the bubble may burst, before the Brexit outcome was known. Although there are no signs of an imminent collapse, many feel that London’s property prices have levelled off, meaning investors will see limited gains in the short-term, regardless of the impact of Brexit. In some areas of London, around 40% of the houses that have come to market have had to reduce their asking prices.
The largest price cuts have been seen in Earl’s Court and Surbiton, with 40% and 38% of houses coming to market having to lower prices to attract buyers. The biggest price cuts are being seen in the high-end of the market, in the centre, west and south-west of the city. One in three properties in upmarket Kensington and Chelsea have had to cut their asking prices by 8%.
These price drops are not unexpected, as many Londoners are living with the lowest levels of disposable income seen in years, meaning that for many people, working in the capital no longer provides a better standard of living.
The Northern Powerhouse
While Londoners suffer, workers in the northern cities of Leeds, Manchester and Liverpool are experiencing a better standard of living with greater disposable income thanks to increasing wages and more affordable housing.
London property investors are seeing their yields squeezed as prices remain high and wages stagnated. London is slowing down. However, in the north, the Manchester property market is experiencing rapid growth, which is in stark contrast to conditions 20 years ago when many inhabitants lived in poverty. In fact, in 1996, Manchester city centre only had a population of 400 – today the centre is home to 20,000, many living in new luxury apartments.
Manchester is experiencing a period of steady growth, with construction cranes dominating its skyline. Between 2014 and 2015, Manchester received £2.3 billion of commercial property investment, which was more than any other English city outside London. Liverpool, Leeds and Newcastle received a combined investment of £2.8 billion.
The Northern Powerhouse is expected to see more investment as rising prices in London force investors to look for new opportunities. Residential property is in high demand in the north too – in 2015, Leeds experienced its highest rate of home building in the last nine years. Leeds’s city centre population has, like Manchester’s, experienced its first period of growth since the Second World War.
Property continues to be a safe investment for investors, and evidence suggests that the Northern Powerhouse is providing better returns and faster growth than London. In a week when we have seen major UK property funds suffer, direct investment in property seems to still be the most secure option, and the falling pound means that inward investment may further strengthen the Northern Powerhouse.