What seemed to be a remote possibility at the beginning of 2015 – Britain leaving the European Union, or ‘Brexit’ – now has a very real chance of happening.
Prime Minister David Cameron has outlined his belief that the UK should continue its EU membership, while other high-profile MPs such as London’s mayor Boris Johnson and justice secretary Michael Gove have announced their support for the campaign to leave.
But what exactly would happen to the property market in Britain if the UK was to leave?
Analysts from investment bank Credit Suisse were quick to reveal their predictions. According to their research, leaving the EU will result in an instant recession that could knock two per cent of Britain’s gross domestic product (GDP).
“If the UK votes to leave the EU, it is likely to entail an immediate and simultaneous economic and financial shock for the UK,” said research analysts Sonali Punhani and Neville Hill, via theguardian.com. “We can expect a drop in business investment, hiring and confidence.”
House prices would then fall due to weaker incomes, the analysts expect, followed by a significant drop in housing demand due to the lower levels of immigration and the UK’s changed status as a financial hub.
However, not everyone shares the opinion of Credit Suisse.
It is the commercial real estate market that will be affected the most by Brexit; that’s the opinion of Stephanie McMahon, head of research at Strutt & Parker. McMahon told forbes.com: “The commercial sector has been seeing a very high level of transactions and global investment. The challenge until now has been a lack of stock, but the referendum will give businesses a reason to delay their decisions.”
When it comes to residential housing, McMahon expects only a modest impact. “Outside London, there is a lower discretionary element to the market and significantly less international demand,” she said.
So what about the London market? Will house prices drop? Opinions are mixed. Almost half of central London buyers are non-British citizens, according to a 2013 study by Knight Frank, and 28 per cent of those buyers did not even live in the UK. However, there’s no clear evidence as to what impact the EU had on attracting this investment, as only 16.5 per cent of those buyers were from other EU countries.
Hansen Lu, a property economist at Capital Economics, agrees that the UK’s housing market would not be affected hugely by Brexit. Quoted in ibtimes.co.uk, Lu said: “Altogether, uncertainty in the short term might lead to a small drop in transactions and a slight easing in house price growth. But we think the prospect of Brexit driving a collapse in prices is slim.
“Rather, with prices very high compared to incomes, and being propped up by a shortage of homes for sale, a recession and rising unemployment that drove up the number of forced sellers and cooled buyer demand is probably the biggest risk.”
Right now, it seems the biggest threat of Brexit would be a dramatic fall in the strength of sterling (by a fifth), resulting in an inflation rise and household incomes needing to be stretched further. Brexit will certainly be noticed in the UK property market, but the long-term impact might not be as negative as some predict.