Just one month on from the UK’s surprising decision to exit the EU, Jonathan Stephens, Managing Director of Surrenden Invest, analyses the aftermath and considers the impact it will have for foreign investors.
As a property investment specialist, the two weeks following Brexit were extremely worrying: the pound plummeted to a 31 year low, many major British companies saw their share price crash and the FTSE tumbled by 5.7% in just three days.
However, the storm seems to have passed and some stability is returning. The FTSE has recovered and there are signs that some investors are more bullish in their outlook. Many European markets have already rebounded, mostly following the news last Monday that Theresa May would take to the reigns as the Conservative party leader and become Prime Minister.
May has already said that she does not plan to initiate Article 50 until the final quarter of 2016, which will help the UK better plan its exit from the EU and negotiate new trade deals with countries both within and outside of the Union. Investor confidence is further boosted with knowing that May has a wealth of experience, with almost 20 years in Parliament, and having been a member of David Cameron’s cabinet for six years prior to becoming PM. May was also the UK’s longest-serving Home Secretary since R. A. Butler’s record-breaking reign from 1957 until 1962.
In my opinion, the news of the UK’s economic collapse has been largely exaggerated by the press. Our economy has grown faster than that of most other European countries during the past decade. Also, the UK’s financial system, which has already weathered a lengthy storm since 2008, has shown that it can withstand economic uncertainty well. Finally, the Bank of England is very much in the driving seat and determined to ensure that the UK can proactively negotiate its way to a stronger position.
Money and Mortgages
London’s property market actually spiked in the week following the referendum. Knight Frank reported a 40% increase, which has been attributed to the improved forex rates for international investors.
The pound may remain weak in the short to medium term, but this means that the London property market is even more appealing to USD-pegged investors in the Middle East, Hong Kong and Singapore. There are now huge savings to be had for overseas investors, and prices remain steady.
The Bank of England has no immediate plans to raise interest rates – in fact, they are considering a cut soon. No increases are expected before 2020. If the UK base rate drops to 0.25%, overseas investors will benefit from both low mortgage rates and excellent currency exchange rates.
Housing in Demand
Housing in the UK is still in high demand, which means that there are no signs of a price collapse. On the contrary, prices are still soaring in many places.
Some of the best opportunities can be found in the north of England, in growing cities such as Manchester, Leeds and Liverpool. Manchester is quickly becoming a global city and is receiving investment from the UK and overseas, all of which is turning an old industrial town into the leading Northern Powerhouse location.
Construction Still Slow
The Leave vote may contribute to a slowing of construction, which will also help to keep prices buoyant. Around 12% of construction workers are EU migrant workers, and while our borders with the EU are being debated, many workers are opting to remain within their own countries. This is causing a labour shortage and is slowing construction. In addition to this, unfavourable exchange rates has increased the cost of raw materials, which further increases the overall price of housing projects.
Five Year Investment
During the past 20 years, the London property market has been offered a steady profit when viewed over a five year period, and this does not look to change. Property is still a very robust medium term investment, and our focus will continue to be in new London developments and the Northern Powerhouse cities of Manchester, Liverpool and Leeds.
This is possibly the best time to invest in UK property. A strong market, low interest rates and falling pound make this one of the best investments you can make in otherwise turbulent times.