The UK election – investor insight

For those of you watching the UK property market from afar, the recent General Election may have left you with some questions. It is fair to say that the results have left many in the UK with concerns also – namely, the fact that the election pivoted on the main issue of Britain’s Brexit negotiations.

The Government’s gamble to strengthen its hand at the Brexit negotiating table with a parliamentary majority did not pay off and it has been left with a weaker majority than before. This is known as a ‘hung parliamentt’ – when no one party has more than 326 seats in the House of Commons (half the total number of seats plus one). This leaves no party in a position to pass laws through the House of Commons without first having to work to secure votes from other MPs.  So while the Conservative party is still in power with the most votes from the election, it is in a position of greatly reduced power in the House of Commons. It is currently negotiating a coalition deal with a smaller party from Northern Ireland to take its number of seats past the 326 mark. It’s seen as a setback for the Government already facing the complex and arduous Brexit negotiations which started last week.

The election results may have caused concern for the UK, but they haven’t affected the housing market which reacted calmly to the political uncertainty. The Royal Institution of Chartered Surveyors (RICS) confirmed that the market was hesitant with domestic buyers adopting a ‘wait and see’ policy, while the FTSE 100 – a strong stock market barometer of international sentiment about the UK – rose the day after the election. It is the Brexit negotiations themselves that are expected to have the greatest impact on the housing market both for sales and rentals.

The housing market in the UK, London specifically, has been already affected by Britain’s decision to leave Europe. In the immediate aftermath of the vote in June 2016, sterling fell against the dollar and the euro – it has recovered well but risks falling significantly again depending on the progress of the Brexit talks. All of which makes the UK housing market a highly attractive option for overseas investors who will find better value purchases.

In addition, the United Kingdom, especially London, is experiencing a housing stock shortage and an ever-increasing demand for sales and rentals. For a buy-to-let property investor, it means that there is little likelihood of any reduction in demand before, during or after Brexit. In fact, as affordability is an issue for many Londoners, the predicted growth in London’s private rental sector is strong. Management consultancy PwC forecasts that by 2025, London will become a city of renters (just 40% will own their own homes) and two thirds of this rental market will rely on private sector investors to provide homes. It is a compelling reason to invest in the capital’s housing market.

Many of the Government’s housing policies: to continue adding to the housing stock, a ban on letting agents’ fees levied on private rental tenants, the promotion of longer-term private tenancies and a desire to streamline the property purchase process, are unlikely to change with a coalition Government and any Brexit agreement. They are however, likely to be a low priority with the focus firmly on Brexit trade deals. It is encouraging to see those trade deal negotiations starting well.

So while it is important to keep up to date with the political changes in the UK and its progress in the Brexit negotiations, neither will significantly change the characteristics of the UK’s, or indeed London’s, housing market which remains a strong investment.

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