How will Brexit affect buy to let landlords?

Great Britain/Europe flags on wall : BrexitAs the dust settles after the country’s seismic decision to leave the European Union; financial commentators are speculating on how Brexit might impact the economy. With so many unknowns it’s little more than an educated guessing game, but some areas will be affected more than others, and housing is likely to be one of them. Gazing into our own financial crystal ball the future looks cloudy for buy to let landlords.

When will things start to change?

With so many variables it’s difficult to say although financial markets rarely react well to uncertainty. What is known is that once the government triggers Article 50 of The Lisbon Treaty the countdown begins and the country will have two years before leaving the European Union.

How will Brexit affect the property market?

While the jury is still out the majority of pundits have predicted that Brexit will cause a slump in the housing market. Having crunched the numbers, The Chancellor of the Exchequer suggested a drop of 10-18%, while ratings agency Fitch said prices could fall by as much as 25%.

The Association of Residential Lettings Agents (ARLA) have done their sums in pounds and pence; predicting that average property prices will fall by £2,300 across the country and £7,500 in the capital.

Whether the property market crashes, or dips and then recovers, it’s widely agreed that the capital will be hit the hardest as London becomes less attractive to overseas property investors. Falling property prices could allow buy to let investors to add to their property portfolios and might be good news for landlords.

How will Brexit affect housing supply?

Brexit has already hit the construction industry hard thanks to the falling value of sterling and the increased cost of imported building materials. A number of large scale building projects have been put on hold and shares in housebuilding companies have tanked. The construction industry relies heavily on EU workers and changes to migration laws could mean a serious shortage of skilled labour. Whatever happens the government is unlikely to hit its target of building 200,000 homes a year and rental demand is likely to stay high.

How will Brexit affect housing demand?

Immigration has been key to the Brexit debate and the government will be working hard to control the movement of European migrants. Fewer migrants would logically mean fewer people looking for accommodation and a subsequent impact on rental prices. However, tenants have been warned not to get over excited as a short term drop in rent might force cash-strapped landlords to exit the market leading to a longer term rise in rent.

Other commentators have suggested that an unsettled housing market might delay first time buyers getting a foot on the property ladder while they wait to see what happens to property prices; thereby keeping rental demand high. In fact, ARLA have commissioned research revealing that over 65% of lettings agents believe the supply of rental property won’t be affected while just 20% expect it will decline.

Sailing into unchartered waters nobody can be sure whether we are going to be stuck in the economic doldrums or facing the perfect financial storm; either way landlord insurance is going to be more important than ever.

 


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