Linked to income, wealth and availability of lending, the housing market is sensitive to the overall economic climate.
With Brexit imminent and the uncertainty that Brexit could take different forms, from no Brexit deal to an agreement with EU, this article discuss how this uncertainty may affect the rental market.
London’s population has been steadily growing, driving the rise in demand for housing in the private rental sector. However, a large proportion of renters are non-British.
The English Housing Survey of 2015/16 reveals that almost 25% of all rental properties are occupied by European migrants. Even though a large number of these European nationals will remain after the Brexit, we can expect to see less European migrants moving to the UK than earlier and a large part will return to their home country after the Brexit.
This may have a significant impact on the rental marked especially in areas where there are large numbers of European migrants.
In the short run, Brexit may also have a positive impact on the rental market, as people looking to rent property rather than buying during the times of economic uncertainty.
We can, therefore, expect to see an increase in the demand for rental homes until the implications of Brexit on the housing market is clearer.
From January 2018 to January 2019 we could see London private rental prices rose by 0.1%, down from 0.2% in December 2018.
With the increased stamp duty tax on second homes and less rental properties in London available, Rightmove predicts rents in London will rise by 4% during 2019.
Buy- to- let market
Brexit may also affect the ‘buy-to-let’ market. We can roughly divide landlords and investors into two groups. Those that worry about Brexit and want to reduce their exposure to the UK property market, and those who see this as a huge investment opportunity.
Despite Properties are regarded as a relatively safe investment, buy-to-let landlords may be more concerned with protecting their profits in light of increasing taxation, stricter lending and increasing regulation.
Since 2016, when the Government introduced a higher stamp duty on second home purchases, it has discouraged many landlords from investing in the buy-to-let properties.
Since the Brexit referendum in 2016, we have seen the interest rate has increased twice, up to 0.75%. Some believe that if there will be no EU deal, we may expect to see an even further increase in the interest rate.
An increase in the interest rate will affect landlords’ profit of a buy- to – let investment since most of these investments are based on an interest- only agreements instead of a repayment mortgage.
With a higher interest rate, the landlord’s monthly repayments will significantly increase and reduce
Both with a higher stamp duty tax on the second homes together with a higher interest rate may force many landlords selling.
In this uncertainty of Brexit and the fear of decreasing housing prices, some investors are also concerned about buying at a wrong time.
It is estimated that house prices in the capital are likely to fall by 0.1% in 2019.
If the value of the properties will go down, it will put the investor in a position of negative equity, owning more mortgage that the market value of the asset.
The long-term effect of Brexit will be more difficult to predict, as it will largely depend on if there will be an agreement with the EU and the nature of the agreement.
If you consider investing in a buy- to – let property. We will strongly advise you to develop a good analysis, by considering which areas are up-and-coming or seeing strong capital growth and make sure you find the best rental yields. Check out the following article: Buy- to -let Guide
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