More foreign investment - A fall in available labour - An increase in the price of construction materials. What will Brexit mean for the UK housing market (and there are a lot of issues, flying under the radar, that aren't getting a great deal of media attention)?
Property Expert Series: Kristen Durose from Red Star Wealth
- Introducing Kristen Durose from Red Star Wealth
- Section 24 And What It Means For Buy-To-Let Landlords
- What Investors Need To Know About The Changes In Stamp Duty
- How Does Capital Gains Tax On Property Work?
- Is There Still An Appetite For Investing In Property In 2017?
- Buy To Let Limited Companies - Why Are Landlords Considering Them?
- What Will A Post-Brexit Housing Market Look Like?
- Can I Use My Pension To Invest In Property?
- What Can Go Wrong With Property Joint Ventures?
Brexit and the Housing Market
Amy: Something else that could have big implications for property investors is Brexit. What is the post-Brexit property market gonna look like?
I know this is probably hard to predict. Afterall, nobody knows what is going to happen. But how do you think things are going to look once we've gone through the Brexit negotiations?
Kristen: With regard to Brexit, there are a few issues that are being widely discussed in the industry. These are foreign investment, importing construction materials and interest rates.
But, as you quite rightly say, nobody knows exactly what is going to happen.
Foreign Investment
Kristen: When the result of the referendum was revealed one of the first things that happened was a fall in the value of Sterling.
It fell and it is still low. So, as a result, there has been an increase in foreign investment in property, particularly in cities like Manchester and London - cities where a lot of building is going on.
The reason we are seeing a lot of foreign investors buying off-plan is that they are getting more for their money. They are not having to spend as much in their currency because the value of sterling has fallen.
Amy: That's something I'd not actually thought about. This sounds like it has the potential to make our market look quite different over the coming years.
Kristen: Absolutely. If you are an investor in the UK and you are going after the same property that somebody from China, the Middle East or America, then their money is going to stretch further than yours.
Then there is the fact that the additional competition in the market could potentially put up prices as well.
Importing Construction Materials
Kristen: Another problem we are facing is the houses crisis. We don't have enough houses.
There is if you look around, building work going on but then construction companies are under pressure, particularly if they have to import their materials.
Obviously, with the fall in the value of the pound, materials imported from abroad those are gonna cost a little bit more and margins are gonna be squeezed. The truth is that construction companies are not going to be able to build the same number of houses, for the same amount that they could have been done, two or three years ago.
These big construction projects don't happen overnight. They will have been scoped out and budgeted for, for quite some time. Prices of materials could be very different now with the drop in the price of sterling.
And there is labour, as well. Particularly in the south of the country a lot of sites will have relied on labour coming from the EU and there has been a slowdown of people wanting to work here because they don't know whether they will be allowed to can settle here.
The Brexit vote has created a lot of issues that are under the radar, that aren't getting a great deal of media attention.
Interest Rates
Kristen: Another situation that we have is that there is currently interests rates and the base rate set by the Bank of England is very low, which is great.
Borrowing is cheap and that's fantastic. However, we've got inflation that is increasing and normally, what we would see when inflation increasing, would be to increase the base rate.
The Bank of England, however, is reluctant to do that at the moment because wages have not increased at the same level as inflation and our economy is quite frail.
I think they're a little bit reluctant to follow the rules as they would normally have done, which is to increase interest rates when inflation goes up.
But, they vote on it regularly, so it might be something that we will see an increase in the future, perhaps after the Brexit negotiations have finished.
I think that's something that property investors need to be aware of, that if interest rates do go up - and if any of their properties are linked to borrowings, mortgages, or loans - how will that increase affect them?
Are they on fixed-rate products or are they on variable-rate ones? What is gonna happen?
I think that property investors, as well as people with residential mortgages, have enjoyed a very laid-back attitude due to many years of low interest and it's not gonna last forever. So that is something that needs to be taken into account.