The British people finally voted on whether or not to remain in the EU, and by a very small margin, the Leave campaign won. Britain woke up to see the pound at an all-time low and the stock markets in free-fall, as investors all over the world started to turn their backs on the UK economy. There is no doubt that there will be hard times ahead for the British economy, but is it really all doom and gloom?
Supply and Demand Driven Economy
Property is very much a supply and demand driven economy, and for a long time Britain has failed to supply enough new homes for its growing population. Of course, it is not only immigration that has fuelled demand, but also changing social attitudes and demographics of the UK – children want to flee the family nest sooner and people are living longer than ever before. Demand just keeps growing. The low cost of borrowing and Right To Buy schemes have also increased private home ownership in the UK.
Although demand is high there are many obstacles to building, such as local planning restrictions, lack of public investment, skills shortages and increasing cost of raw materials, which puts a brake on house building.
Safe As Houses
However, during times of economic uncertainty, housing has always provided a safer investment, and this is why property tends to buck the trend and outperform the stock markets and money markets. Residential property also provides a healthy income stream with some excellent returns on investment, far higher than can be achieved with blue chip shares. In addition to this, people do not trade homes on a whim – the stock markets may be in turmoil, with record numbers of trades being agreed today, but selling a property is a longer process, and this helps to protect the property market from panic trading.
Infrastructure Investments Will Drive Growth
The government’s major transport infrastructure upgrades, such as Crossrail, will continue to drive demand in new property hotspots around London, especially in Essex – a quick look at estate agents in Brentwood reveals that prices are already increasing in anticipation of the arrival of Crossrail. The northern powerhouse continues to promise growth, which will see increased demand in Manchester, Leeds, Liverpool and Newcastle.
Property Is A Long-Term Investment
Property is almost always a long-term investment. Although some people do enter the buy-to-let market with interest only mortgages in the hope to make a quick profit after a few years, most investors are thinking about returns on investment over decades, not years. Combine this with the fact that the average net income on a property investment is six times the BoE base rate, and the property market looks more secure than ever.
Low To Zero Interest Rates
In fact, there is already talk of interest rates being cut to zero percent this year. Many UK householders are straddled with debt, with large mortgages, credit card debts and personal loans. The government cannot afford to raise interest rates for fear of a surge in repossessions leading to another economic collapse on par with the 2008 credit crunch crisis. Mark Carney has already confirmed that interest rates will remain low.
Britain may be poised to leave Europe – the process may take two years and still needs to be approved by Parliament – but as far as the property market is concerned, investors look set to remain, and the property market actually looks stronger than ever before.