The EU Referendum & The Property Market: What We (Don’t) Know

It seems that everywhere you turn at the moment, someone is talking about the EU referendum. Feelings are running high on both sides, and yet it feels like there’s very little in the way of straight-up, unspun facts.

We’ve set out on a quest to try and pin down some objective answers. After all, there’s an awful lot of discussion of how a potential exit from Europe will affect the property market. So, we thought it only right that we should try and clear things up for you guys.

However, with our crystal ball sadly out of order, we’re sorry to say that we’re none the wiser. Turns out, no one really knows for sure what will happen if we leave Europe, nor even how things are likely to go if we stay. That’s not to say a little guesswork couldn’t be beneficial… Frazer has offered a ‘Referendum Martini’ to the person with the most accurate prediction when we review the impact of the referendum in twelve months’ time.

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So, how do you like yours? Shaken, not stirred? On the rocks? We’re afraid straight-up seems to be off the menu right now.

A poll back in November by Greenberg Quinlan Rosner identified Founder of MoneySavingExpert, Martin Lewis, as the most trusted voice in the EU debate. So, let’s see what he has to say.

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Gee, thanks for that, Martin.

Martin also added that “anybody who tells you that they know what will happen if we leave is a liar”. Of course, he’s right. No one really knows what’ll happen if we leave. Either that, or it’s being kept very, very quiet because there are dragons involved.

The EU Referendum

 

Dragons or no dragons, one thing’s for certain: on 23rd June, we’re expected to queue up at the polling station to cast our vote in the national equivalent of a “Guess how much this pig weighs” competition at the village fair.

Whatever your own, personal views may be, we’re sitting firmly on the fence with this one. Frazer himself sighed heavily when we announced our intention to write this article. Nonetheless, we still want to give you, our investors, a bit of a rundown on how the referendum may or may not affect the property market here in the UK. We’re basing this purely on the information that’s out there already (trust us when we say that, whilst writing this, we have three browser windows open, with a total of eighteen tabs between them, plus a notebook full of confusing stats and quotes), so just to drill the point home: we have no interest in swaying your vote either way.

With that in mind, probably the best way of doing this is to tackle each side of the debate in turn. Are you sitting comfortably?

Bremain: The ‘Stay’ Camp

The Prime Minister and Chancellor are, as we all know, rooting for Remain, marking an elaborate about-turn on what Cameron had to say about the EU back in 2009, before he was elected Prime Minister. This may, or may not, have something to do with TTIP, another thing that may, or may not, be good for Britain. But, of course, there’s plenty of talk of deception from both camps, with even Bremainers suspicious about Cameron’s motives for switching sides.

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Whatever the motives, George Osborne has come out with a damning indictment of what he reckons will happen to the property market in the event of a Brexit. The Chancellor predicts a house price crash, which would leave homeowners in negative equity and being forced to sell at a loss, and property investors seeing a slump in the value of their asset. He has also stated that the cost of mortgage products would rise, so even those seeing the opportunity in a crash to get on the property ladder would not benefit. Even with lower housing prices, if mortgage prices go up, people wouldn’t necessarily be able to afford to buy anyway. He predicts that, within the fifteen years following a Brexit, households would be £4,300 worse off.

Whilst the general consensus is that Brexit could cause a drop in property prices, Robert Gardner, chief economist at Nationwide, believes that other factors could keep those prices buoyant:

“It is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth.”

This view, of course, supposes that those factors will remain constant in the event of a Brexit, which – again – is not entirely certain. Perhaps we should ask Martin Lewis again…

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Brexit Clauses and The Fate of Sterling

It’s interesting to note that the most recent reports that support for Remain has dropped appears to have caused an immediate plunge in the value of sterling against the dollar. Could it be that the very idea of us leaving the EU is having a negative effect on our economy?

A survey by accountancy firm KPMG has found that 66% of real estate experts believe that “Britain leaving the EU would have a negative impact on inbound cross-border investment”, with fewer overseas investors being prepared to invest whilst the fate of sterling is so shaky.

Reuters conducted a survey of 24 law firms, and found that a solid half of these had used special ‘Brexit’ clauses, had at least one request for such a clause, or brokered a deal with one. The rest said they’d seen one, though not dealt with one directly.

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So, what is a so-called ‘Brexit’ clause? Well, they’re currently all the rage, it seems, particularly in high value investments and with overseas investments, who are concerned that an ‘Out’ vote could weaken the sterling. Such a clause is being added to contracts, giving buyers the right to walk away from real estate deals in the event of a ‘Brexit’ vote.

Paul Firth, of law firm Irwin Mitchell LLP, has stated that “Investors fear that the value and return on investment properties may decline, and may not be as good an investment if Britain withdraws from the EU”.

Buyers investing in the swanky new Two Fifty One luxury apartment tower in up-and-coming Elephant and Castle are doing so on the understanding that they do not have to exchange until July 6th, and could withdraw their offer with a full refund of their deposit if they are unhappy with the outcome of the referendum.

However, whilst such a clause does sound particularly damning in terms of general opinion of Brexit, admittedly it’s mostly just good marketing, a way to try and unfreeze a sector that’s currently being stalled by uncertainty ahead of the vote. Both buyers and sellers are waiting to see the outcome, which can be seen in the commercial property sector in particular, where transactions have fallen a steep 40% in the first quarter of 2016.

Brexit: The ‘Leave’ Camp

Let’s start with George Osborne. This ‘households worse off by £4,300’ figure of Osborne’s has attracted some scrutiny. Sceptics point out that with this statement Osborne is conflating GDP with household income, a phrase that has never been used in any budget to date. In fact, Osborne said himself, when entering office, that “GDP per capita is a much better indicator”. He even went as far as to say that GDP is a misleading indicator that can be artificially inflated by immigration. Interestingly, he’s made no mention of GDP per capita at all upon the launch of the latest ‘Brexit’ documents published by the Treasury.

Going back to Osborne’s statement about Brexit’s effect on lowering house prices, there is a similar potential disadvantage to remaining in the EU with regard to the same. It could be that staying in the EU makes it even harder to get on the property ladder than those proposed hikes in mortgage prices. If there is a surge in immigration to the UK following a Bremain vote, domestic demand may keep house prices rising.

And speaking of immigration, yes, with a ‘Brexit’ vote, there is the chance of EU nationals losing their right to live and work in the UK. However, this assumes that a post-Brexit UK government would immediately seek to cleanse the country of EU citizens. It’s something a lot of Bremainers are very worried about happening, and understandably so. Are you worried about this, Martin Lewis?

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But it’s worth asking why the government would do such a thing? It’s most likely that EU nationals earning over a certain amount, and contributing to the UK’s economy, will find it no harder to live here than they do at present. Those who would have to worry are likely to be EU citizens in the UK in low-paid jobs, or who are unemployed. And, speaking purely on the subject of the property industry, it’s not these guys who are going to be buying here anyway.

Let’s look at the prime housing market in London, where, according to a study by Knight Frank, in 2013, for example, 49% of all prime central London buyers were non-British citizens, while 28% didn’t even live in the UK. It’s hard to say if the EU played any role whatsoever in attracting the super-wealthy to London, perhaps not a big one, seeing as only 16.5% of these buyers were from other EU countries.

Some owners in this category would, indeed, sell up and leave the country in the event of a Brexit vote, most likely as a result of institutions like the European Bank for Reconstruction and Development upping sticks and taking staff with them. But the main body won’t be forced to leave, nor, indeed, even want to if we leave the EU. And, what’s more, the bulk of serious money in this area comes from the 9% made up of Russians, and 7.5% of wealthy Middle Easterns, to whom the EU matters not a jot.

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That being said, it’s not just the super-wealthy from overseas who favour the UK. Whilst these overseas investors may be attracted to our rising property prices, they also love the UK’s greatest cities for their vibrant culture, relative political and economic stability, relatively honest legal system, and its favourable rules for non-doms. In short, in London at least, the effect of Brexit is unlikely to be too catastrophic. Winkworth’s Dominic Agace concurs:

“The UK and London in particular has always had a draw for foreign investment, not only from Europe, but much further afield, and I would expect this to continue whatever the outcome, especially as people come for many reasons, including schools and the lifestyle.”

Further to all this hoo-hah about property prices plummeting, the Brexit camp would point out that, despite the slowdown in the wider economy, house prices in the UK are still climbing fast. In the year to March 2016, a 9% rise was reported by the Office for National Statistics. Projections also show that prices will continue to rise, roughly by a further 10% by the end of 2018 (according to the Office for Budget Responsibility itself!). So, if we use the Treasury’s own figures, that prices will be 10% lower than they would otherwise be by 2018, surely that implies prices would just be flat on today’s cash terms?

Finally, despite Osborne’s fears that not only house prices would plummet, but that mortgage rates would rise, the Brexit camp is optimistic. Due to immigration from the continent in the event of a Bremain vote, the young people who are currently finding it hard to get on the property ladder would find it even harder, they argue.

Conclusion

To conclude, despite what sounds like good arguments on both sides of the debate, there remain no tangible facts to go on with. Pick your side, and hope for the best. And stay tuned for any news as to who’s going to get their hands on that ‘Referendum Martini’ from Frazer…

Who do you think will win that Martini, Martin Lewis?

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Property News Round-up 23/3/16

Property News All The Latest Updates

 

Hi guys welcome to our fortnightly property news blog, as usual we will be taking a look at the latest domestic news and will be taking a look back at last week’s budget to taking a tour of a fairy tale castle in Greater Manchester – can you guess the property’s price tag? If you missed our previous property news round-up catch up here.

 

Budget 2016: What It Means For The Property Industry

George Osborne Budget 2016

Last week George Osborne made a number of announcements in his 2016 Budget that will affect the property industry here in the UK.

The chancellor, (as quite a few were expecting) did not take a u-turn with regards to the additional stamp duty rate. So what does this mean exactly? In a nutshell, it means an extra 3% levy on top of normal stamp duty rates if you buy multiple properties.

In addition, he also scrapped the “slab” system for tax rates on commercial property purchases. According to the IBT, the reform now works like income tax, with the rate only applied to the portion of the property price that falls into its bracket. He also raised rates in the top price brackets and cut them at the lower end. Moreover, only 9% of commercial property purchasers will pay more.

Mr. Osborne also cut Capital Gains Tax (CGT) rates. On the day it was announced that the higher rate will reduce from 28% to 20% and the basic rate from 18% to 10%. If you’re thinking there has to be a catch there, you’ve hit the nail on the head. The catch is the former rates will still apply for sales of residential property. It’s worth noting that Capital Gains Tax is not applied to profit made on your own home. However, if you own any additional properties then CGT does apply to you. This is bad news if you are a landlord as you will be penalised if you decide to sell. This doesn’t apply to all types of property investors. For example, people who have invested via funds will benefit from lower CGT rates on the profits they make.

On the day it was also revealed that property developers must pay tax on their profits. In addition, the HM Revenue and Customs will bring together a task force for targeting offshore developers in the UK. It has been reported so far that the tax office has identified 100 “high risk” developments.

The government stated in the budget that it will work closely with local councils to identify where they can be given more “planning freedoms” to ensure thousands of new homes are built. Additional financial support will be given to councils that plan to build houses on the outskirts of towns and cities (aka garden villages) which consist of 1,500 to 10,000 homes.

Lastly, it was announced that money will be going to the homeless. Osbourne’s budget said that £115m being put towards helping rough sleepers. The majority of the homeless spending will go towards low-cost ‘second stage’ accommodation. However, while many homelessness charities welcomed the government funding, they stressed that the problems run far deeper than a shortage of money.

What are your thoughts on the budget? What other changes would have you liked to have seen Mr. Osborne include on the day?

Image Source : Liverpool Echo

Northern Cities Are Among The Best Places To Invest In Property

Liverpool Property Invest

Northern cities are the hottest up-and-coming areas for UK property investors, according to data released today on affordable homes. (City AM, March 2016)

Research from Which? shows that where property prices are surging, thaey also have an average house price below £200,000.

Liverpool’s city centre takes the top spot for when it comes to affordability. Land Registry data indicates that the average home in the L1 postcode still costs just £120,000 despite house prices increasing 41 per cent over the past year.

Other areas that have seen strong price rises but remain affordable include Bradford’s BD1 postcode which is east of the city’s university.

Manchester’s M12 postcode came fifth on the affordable list with an average house price of £98,000, the area is cheaper than Liverpool’s central district, however prices rises from this postcode have not been as dramatic, rising at 32 per cent.

Are you interested in investing in the north? If so why not check out our guides on Manchester (North and Central) and also our South Yorkshire guide.

 

Property Prices In Manchester Increased Over 30% In 2015

North of England Property Invest

Staying in the north and looking at property prices a little bit more closer to home (part two of the above if you like), Salford’s M5 postcode recorded the region’s highest rises, with the average value of £127,890 representing growth of 34% in just 12 months.

As Select Property Group mention in one of their recent articles, 2015 was a year in which Manchester firmly established itself as a property investment hotspot. It was named by HSBC as the UK’s number one city for yields, with rental rates being driven by one of the lowest levels of housing supply and a population growing at three times the national average.

Investors have started to whet their appetite when it comes to investing in Manchester due to the fact it has one of the country’s youngest populations, with 60% more 25 to 29-year-olds living in the city. The millennial generation (aka Generation Y) are known for renting and with a vast amount of graduates and others relocating for jobs, Manchester is currently a prime place for property investors.

 

London Property Prices Rose Almost £500 A Day In January

London Property Prices

Moving from the north to travelling ‘down sarf’- London house prices increased by almost £500 a day in January, according to government figures that provide fresh evidence of a “two-speed” property market. (Guardian, March 2016).

Data from the ONS (office for National Statistics) indicates that London and the South East are still dominating and continue to power ahead with double-digit annual growth rates. In contrast, in other regions of the UK such as in Wales, Scotland and Northern Ireland figures appear to have stuttered to a halt.

According to the ONS, The average London house price hit a record £551,000. This was £15,000 up on December’s figure of £536,000 and an increase of £484 a day.

Dragonfly Property Finance’s managing director Mark Posniak told The Guardian : “This latest annual house price data once again throws into sharp relief the contrast between the housing markets of England, Wales, Scotland and Northern Ireland. They may be geographical neighbours but they could be thousands of miles apart in terms of house prices.”

 

Fairy Tale ‘Castle’ In Greater Manchester – Can You Guess Its Price Tag?

Manchester Castle

Want to become lord or lady of the manor? Here’s your chance (if you’ve got a LOT of spare cash lying around that is!) Wharmton Tower, in Grasscroft (Oldham) has eleven bedrooms, a separate coach house and even a stone-built summer house – and is just a short drive from Manchester!

Grasscoft has some well-known residents such as Paul Scholes and Dr. Brian Cox and is ideal for those who love to live in a relaxed and quiet surrounding. BUT to live this life of luxury how much will it cost you?

 

How Much Does The Fairy Tale ‘Castle’ In Greater Manchester Cost?

 
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Image Source : Manchester Evening News

What Are Your Thoughts?

Which of our chosen property stories has interested you the most? We would love to hear from you, feel free to leave us a comment on our Facebook and Google Plus pages. If you prefer to tweet us, tweet @TheHouseCrowd.

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The Chancellor’s announcement and how it affects property investors…

George Osborne announced yesterday the introduction of a government-backed mortgage lender guarantee in order to help house hunters who are struggling to find a deposit.

The guarantee will provide up to £130bn of lending between 2014 and 2017 in order to encourage lenders to provide high loan-to-value mortgages. It could continue to run beyond this with the Bank of England’s agreement.

This will undoubtedly give a boost to property prices especially in the areas The House Crowd are buying – these are the poorer areas where people are least able to raise a 20% deposit. That’s good news in that it will give us better capital gains and make it easier to sell properties. Conversely, it will also make it harder to buy property after 2013 that will achieve double digit yields.

It is therefore our intention to capitalize on this announcement and buy as many properties as we possibly can in the next 12 months. If you want to maximize your returns, then the next few months presents the best opportunity for you to do so.