Why will the London housing market continue to rise in 2017 regardless of Brexit outcome
Since the referendum on 23rd June 2016 and the subsequent British vote to withdraw from the European Union, there has been countless number of reviews, reports and headlines focused on the knock-on effects of this historical event on the London and UK housing market.
In this article we will look at the fundamentals and focus on factual information as opposed to the subjective views which attract a lot of attention at the time of their release, as headlines, with very little longevity and in some cases prove to be incorrect. Here is an example:
On Friday, 5th August 2016 The Irish Examiner referenced projections published by S&P Global Ratings stating that “UK prices will start to fall back sharply later this year and drop next year, by 2%”. (http://www.irishexaminer.com/business/uk-house-prices-to-drop-in-2017-over-brexit-414254.html). Then on Monday, 7th November 2016 The Guardian referenced The Halifax House Price Index which reported that “In the three months to October, house prices were 5.2% higher compared with the same period a year ago” https://www.theguardian.com/business/2016/nov/07/uk-house-price-rise-halifax.
So what are the facts?
- There is no doubt about the fact that UK, more specifically London, experienced a surge of overseas buyers in the previous three to four years before 2016. This played a major role in upward trajectory of the market which in turn experienced double digit price increases on a year on year basis. Following the Brexit and subsequent weakening of the Sterling against the US Dollar by approximately 20% there has been a lot of controversial headlines focusing on the negative impacts that this will have on the housing market in London. However, in actual fact, from an investment point of view, for any buyer with dollars in their pocket, London has never been cheaper! The same house or apartment in a W or SW postcode is now up for grabs for fifteen to twenty percent less than last year, thanks to the FX rates! This also appeals to a whole basket of other currencies such as GCC nations and Hong Kong which are all pegged to the dollar.
- The supply and demand aspect of the London and UK housing market will always support the value proposition that investment in this part of the world will continue to pay dividends. The fact of the matter is that there is a housing shortage in this country, and simply put, the number of buyers continues to be far greater than the level of stock available.
- UK, and more specifically the London construction industry siphon’s a significant contribution to the jobs market and national GDP. In a low growth environment, and actually a no growth Europe, it is in the interest of both the UK government and the private sector developers to support the livelihood of the housing market. This will inevitably result in more stock being introduced to the market and generate increased activity with buying and selling which will in turn provide a blood line for near term prosperity of the market.
- Whilst the mortgage lending criteria in the UK has been tightened following the global credit crisis, the rates are at an all time low and according to the information which has been recently provided by The Bank of England, they are going to remain low. This simply makes servicing any borrowing against a property investment very attractive.
- The global macro economics have resulted in a great deal of uncertainty in 2016. Oil price at an all time low (in years), fixed income and bonds are causing major headaches for almost every central banker in the world and equities can only go up so much before the markets experience a dip of some kind! Almost every asset class in the financial markets has a higher than usual volatility from a risk management standpoint. This scenario makes ‘bricks and mortar’ even more attractive and a safe play!