What impact will Britain’s vote to leave the EU have on the PRS?

The public vote in favour of Brexit is a shock to many people and has already resulted in a sharp decline in global markets and the value of the UK pound, while David Cameron has announced that he is to step down as Prime Minister later this year. But what impact will the outcome of the referendum have on the private rented sector?

The economy

Early indications are that the fall in the pound’s value, as well as the stock market, could very well lead to a technical recession, higher unemployment, which in turn may result in a cut in interest rates and possibly even further quantitative easing.

Borrowing rates

A reduction in interest rates could actually lead to cheaper borrowing levels – although this remains to be seen as there are other factors at play.

Transactions

Most experts we have spoken with this morning estimate that there will be an immediate slowdown in housing market transactions, in the order of around 15%, resulting in downward pressure on property prices in the short-term.  

International investors

The dramatic drop in the value of the UK pound will alert many shrewd international property investors, with many buyers from Asia, as well as from the US, looking to take advantage of a more favourable exchange rate and snap up bricks and mortar in the UK.

Property prices

House prices could fall across many parts of the country in the near term as prolonged uncertainty and a potentially weaker economy has an adverse impact on the market. But the general housing shortage means that prices should rise in the medium to long term.

New housing supply

Based on recent comments from leading housebuilders, many residential developers will be less willing to commit to new property projects due to the uncertain economic climate. This will make it much harder for the government to achieve its target of building 1m new homes by 2020. This will add to the supply-demand imbalance, placing upward pressure on house prices and rental values in the longer term.

Rental demand

Both buyers and sellers are clearly anxious, as reflected by a noteworthy drop in sales market activity in recent weeks, and with uncertainty set to continue for the foreseeable future, as would-be buyers adopt a ‘wait and see’ policy, demand for rented accommodation is set to rise.

Rental prices

The cost of renting will rise across many parts of the UK as demand from tenants increases and new housing supply falls. The biggest affect could be in London, where rent prices have been pushed sky-high due to huge demand.

Conclusion

The rental market will carry on functioning healthily despite the UK’s decision to exit the EU. 

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