The U.K. property market currently presents one of the best moments to buy a house. The growth rate in housing prices appears to have slowed momentarily following the Brexit vote, leading property analysts to believe it could be the best time to invest.
However, there are those who still fear the effects of the Brexit vote could be prolonged for a couple of years as Britain and the European Union work on the separation process. A quick resolution for the separation is deemed to be the best for Britain’s financial sector, whereas a lengthy process is likely to raise uncertainties that could hurt economic progress.
As such, it is possible that the dip in the house price index witnessed shortly after the Brexit vote could be the tip of the iceberg.
There are reports that suggest that the British economy could continue to suffer even after the completion of the separation process due to new obstacles it will face when trying to access the EU single market. This is probably why Prime Minister Theresa May hinted that the U.K. might have to pay in order to retain privileged access.
The EU market has provided the U.K. with cheap labor, export markets and imports at competitive rates, among others, for several years. The prospect of eliminating these economic catalysts resulted in a massive plunge of the British pound after it fell to the lowest level in more than thirty years.
As per this trading calculator, the pound/dollar exchange rate is pegged at just 1.2129, which makes it a new multi-year low. The pound/dollar last exchanged at 1.05 in February 1985 and according to the current trend, it would be premature to say that it will not breach that level in the near future.
This is an example of how deep the Brexit effect could run in the coming years. Being out of the EU denies Britain several privileges it had when doing business with member countries and this has had an adverse effect on the pound.
The separation from the EU also means that it will be difficult for people from EU member countries to move into Britain or gain employment in the U.K. This will have a direct impact on the housing market because, obviously, there will be a slowdown in demand for accommodation. Low demand implies low housing prices. But this is not the main reason why the U.K. property market could be heading for a slow growth.
The financial sector is expected to suffer significantly. Firstly, some foreign banks have already indicated that they are likely to move their operations out of the U.K. This will affect the economy in many ways. Not only will it further hurt the British pound, but a lot of people are likely to lose their jobs.
If this is a sign of things to come, more companies from different sectors might follow, creating a long-term effect on the U.K.'s economy. Since the Brexit vote, demand from U.K. customers has declined significantly and this could push some companies to exit the market in the near future.
For instance, Swiss engineering group ABB revealed on Thursday that total U.K. orders were 56% lower in the three months ended in September than in the same period in 2015.
In the housing market, the average house price increased just 0.3% in September as compared to 0.6% in August.
Interestingly, the latest report from the Royal Institute of Chartered Surveyors indicated that the demand for housing increased for the first time since February. Nonetheless, the U.K. House Price Index still suggests that the slow growth is not over yet after peaking in June, just before the Brexit vote.
Quick sale property dealer Ready Steady Sell believe that in light of the post-Brexit Britain, it is still too early to pinpoint what direction the housing market could take from here. In a year’s time, housing prices could be growing at a faster rate than today given the progress of Britain’s separation process from the EU and any measures taken to retain access to the EU single market. This is why it might be the right time to invest in the market while housing prices remain tamed by the Brexit effect.
The U.K. House Price Index has been stuck within the 692-693 points range for the last three months, as compared to 701 points in June. This clearly indicates that while the demand for housing may have increased in the past month, the driving factor could have been the attractiveness of the current housing prices.
Conclusion
The U.K. economy appears to be at a crossroads and investors are taking advantage of the situation, putting their money in sectors that would otherwise demand higher prices had Britain not voted to leave the EU. But this could still trigger a chain reaction that could boost prices down the line, which makes it attractive to invest in the U.K. property market.
Disclosure: I have no position in any asset mentioned in this article.
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