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How could the EU Referendum affect the PRS?

Posted on 2016-05-16

We're now officially in the 'campaign period' for the EU Referendum, which takes place on June 23.

Wherever you look at the moment, it's likely you'll find something weighing up the implications of a possible 'Brexit', should the UK vote to leave the EU next month.

Whatever anyone's stance on the Referendum, it's going to be a momentous day for the UK and it's a very important debate for the future of our country.

By now, you'll probably have heard lots from both the 'leave' and 'remain' campaigns, but how could either scenario affect the property market? And, more importantly, the Private Rented Sector (PRS)?

Before the Referendum

When thinking about how the housing market could be affected in the run-up to the Referendum, it's best to look at the impact recent events of a similar magnitude have had.

For example, in the run-up to last year's General Election many property firms reported a lull in activity.

And the same can be said of the Scottish Independence Referendum in 2014. At the time, Rightmove reported that the whole UK market could have been affected by the uncertainty in Scotland in the lead up to the vote.

The reason for activity drop-off during these pre-vote periods is usually down to uncertainty among the public and the business world. Many investors, sellers or businesses like to wait until there is a definite outcome before making their next move.

It looks like the period leading up to June 23 will be largely the same. Already, a survey by removals firm Bishops Move has shown that high numbers of home owners will delay any housing activity until after the Referendum.

The situation was more acute in London where 47% of those surveyed said they will be waiting until after the vote before buying or selling a property.

Meanwhile, high profile estate agencies Countrywide and Foxtons have already reported that EU Referendum doubts could have a significant impact on the market in coming weeks.

This period of uncertainty could see fewer tenants moving between properties or fewer renters entering the PRS, but it's more likely to affect the sales market.

Some agents' landlords may wait until after the Referendum before expanding their portfolios further – particularly when combined with the recent stamp duty changes.

A more positive scenario for letting agents is that any landlords who are thinking of selling properties may also wait until after June 23, meaning agents may be able to manage some properties for longer.

House prices

A lot of the property market analysis which focuses on the Referendum centres on house prices – would a 'Brexit' cause house prices to rise or fall? And if we remain in the EU, how will prices be affected?

It's pretty hard to determine any hard and fast effects of either scenario on house prices. That said, many commentators have tried to predict what could happen.

Paula Higgins, chief executive of the HomeOwners Alliance says: “We think that leaving the EU would lead to downward pressure on house prices – they might not actually fall, but they would rise more slowly than they otherwise would.”

A recent survey of mortgage brokers, carried out by bridging finance lender MTF, sums up the current landscape perfectly.

When asked whether they thought prices would increase in the event of a 'Brexit', 44% of those surveyed said they were 'undecided'. Meanwhile, 28% said they thought prices would increase and the remaining 28% indicated they thought prices would remain unaffected.

Housing data analysis firm Hometrack says that if prices were to drop in the build-up to the Referendum, a vote to remain would see prices and activity recover at a quicker rate than if the public votes to leave.

Either way, tenant demand is likely to remain high as more people actively choose to rent and home ownership remains an expensive alternative for many of the UK's residents.

If prices did dip, there could be a window of opportunity for landlords to expand their portfolios. Picking up a bargain before prices start to rise again could be beneficial as, for example, the stamp duty surcharge would not be quite so off-putting.
What's more, in this scenario, landlords are less likely to sell properties, instead waiting for more positive market conditions before reducing their portfolios.

Economic stability

One of the biggest issues being debated around the Referendum is whether a vote to leave or remain will affect overseas investment in the UK.

A survey by global business auditor KPMG found that 66% of property industry professionals believe a Brexit would have a negative effect on foreign investment in the UK.

That said, one school of thought is that London in particular has such a vibrant property market and long-term economic and political stability that whatever the result, people will still want to invest in the capital and other parts of the country.

However, others have argued that if a 'Brexit' does occur, the long period of adjustment will take its toll on economic performance and might dissuade investors.

Private Rented Sector

The possible effect on the PRS depends largely on how the other factors pan out.

If, for example, the UK does vote to leave the EU and levels of overseas investment decrease, this could have a significant effect on the PRS.

This scenario could free up more housing stock for landlords and prospective owner-occupiers.

It could also see less money invested into the fledgling Build to Rent sector.

On top of this, whatever happens to house prices – whether they rise or fall – will impact on how financially viable it is for landlords to expand their portfolios.

As for tenants, whatever is decided, demand is likely to remain high. However, in the event of the UK leaving the EU, there could – in time – be a slight drop off in the number of EU nationals coming to the UK, many of whom would likely be private renters. A change to the UK's EU membership status could potentially impact net migration levels and this could affect the rental market, particularly in London.

Looking ahead

As we build up to the vote, one thing seems more certain than anything else – that the housing market will encounter a bit of a lull in the next few weeks.

After that, it's hard to draw any solid conclusions and a lot of what we read will be speculation intended to favour one side or the other.

However, whether the UK votes to leave or remain part of the EU, the PRS will remain an integral part of the housing market and agents should still be able to count on high demand from tenants and landlords.


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