15 Aug

Brexit vote: opportunity or threat for landlords?

Posted 15/08/2016 by: Reeds Rains

Whether you were for or against Britain leaving the European Union, it’s certainly had an impact on our politics and economy, both of which can impact the property market. 

What’s happened so far? 

When the country experiences something unexpected happening, it can create uncertainty, and cause people to change their current behaviour. And when people are unsure as to what happens next in our economy, they tend to hold off making big financial decisions, which includes buying a home. 

The GfK consumer confidence barometer measures people’s confidence on a monthly basis and a recent ‘one off’ report suggests for now at least, people are nervous. The report reveals that ‘six in 10 (people) expect the general economic situation to worsen in the next 12 months. Only 20 percent of consumers expect it to improve, down from 27 percent in June.’

Interestingly though, GfK’s research has revealed big regional differences to the news: ‘In the north of England, confidence has dropped 19 points and in Scotland it has fallen 11 points. In the south (including London), there has been a 2-point drop.’

Whenever something like this happens, this can lead to some buyers holding off purchasing a home, especially as we are entering the summer holidays when people tend to go on holiday. And it’s not just buyers that can be nervous at times like this, but sellers to. So sometimes demand can fall as much as supply and little impact is seen on property price growth. However, in some areas where a reduction in demand is more than a fall in the supply of properties for sale, property price inflation could reduce. 

However, we need to bear in mind that a slowdown in the property market isn’t wholly down to the Brexit vote. Because there was a big uplift in sales in the first quarter of the year, when investors rushed to beat the introduction of the additional 3% stamp duty, property purchases being brought forward like this, coupled with affordability issues which are starting to bite in the South, has led to property price inflation slowing. 

But, property prices are still up by 6% year on year!

The underlying property market is strong

At Reeds Rains we invest heavily in producing expert analysis from Acadata, a research-based consultancy practice, which includes experts from the Cambridge Centre for Housing and Planning Research. This, together with our own data, helps ensure you are properly informed on what’s actually happening in the market. 

Our latest report shows that even if there is a slowdown in the market in the short term, the likelihood is that it will, in most areas, only reduce house price inflation and not necessarily lead to falls.

Highlights from our latest index:

  1. Property price inflation was already slowing prior to the Brexit vote, but at the end of June, prices were 6% higher than they were in 2015
  2. Property sales in June were 13% lower than last year, but better than May’s sales 
  3. May’s house price averages in the capital were down 1.4% month on month, but still up 7.3% year on year
  4. The East of England region, led by Luton and Thurrock, showed high price growth of 21% and 16% year on year 

Adrian Gill, director of Reeds Rains, says: “Brexit is going to have a wide range of influences on the market, both positive and negative. How they will all balance out is far from clear, but they are going to increasingly dominate the market in the months ahead.”

To read more of these reports, visit the Reeds Rains Blog.

Why a ‘market wobble’ could be good news for savvy investors

When normal buyers are nervous about purchasing a home, this can actually end up creating opportunities for experienced investors, for two reasons. Firstly, if prospective buyers hold off, especially just in the short term, sellers that can may accept a lower offer to allow them to move on. Any Buy to Let investor that buys a property at a good price can boost their yield, as you pay less for the asset but the rental income is likely to stay the same. 

For example:

If you buy a property for £150,000, which generates annual rent of £7,500, the gross yield is 5% (£7,500/£150,000).

However, if you can secure the property for £135,000 and retain the annual rent of £7,500, you boost your yield to 5.5%.

Secondly, if people aren’t buying, they either live at home or rent a property, so the demand for your Buy to Let is likely to increase – provided it is let in a good condition. Since 2002, the private rented sector has doubled in size and the latest data from the English Housing Survey shows that 19% of households are now renting1. Part of this rise has taken place since 2007/8 when the recession hit, and then people continued to rent as opposed to buy.1

The only downside to a slowdown in property price inflation is that it can hold back your existing portfolio’s capital growth in the short term. However, with homes typically being in short supply in most areas, it’s likely that price growth will bounce back – as it has in most places post the last recession and if a temporary slowdown allows you to buy more properties at a discount, then this can help balance and boost your returns long term. 

And finally, the other potential upside of the current economic uncertainty is the cost of servicing mortgages may reduce, helping you to improve your net income.  

Overall, as long as you have a strong portfolio and your Buy to Let properties generate good returns, market issues like this can be a good opportunity to make some money.

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