How will a disorderly Brexit affect your property investment strategy?

A no-deal Brexit could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis, the Bank of England warned last year.

The central bank fears that failure to reach a deal with Brussels – with no transition period to a new trading relationship – could spark an immediate economic crash, with GDP falling by up to 8% this year, the unemployment rate increasing to about 7.5%, interest rates surging to 6.5%, and property prices crashing by up to 30%.

But having already been criticised by respected economists Paul Krugman, a former winner of the Nobel prize in economics, and Andrew Sentance, a former member of the Bank’s interest rate-setting committee, the gloomy figures - certainly as far as house prices are concerned - have been broadly rejected by a number of leading property firms, including RICS, which dismissed the Bank’s prediction in the event of a disorderly Brexit as “implausible”.

However, there are still plenty of gloomy forecasters predicting that property prices will fall in the event of no deal Brexit, with some forecasting a double-digit drop in values.

Paul Smith of Touchstone Education commented: “When the Bank of England Governor, Mark Carney, warned last September that a disorderly Brexit could send house prices crashing by a third, many people dismissed his comments as the latest instalment of Project Fear.

“Forecasts of economic doom caused by Britain exiting the European Union are viewed very differently depending on which side of the argument you fall.

“Even those who balk at predictions of financial Armageddon will have taken note of some figures published this week suggesting that the political uncertainty surrounding Brexit has helped to push transactions in central London to their lowest in a decade.

“While property markets elsewhere in the UK have remained steady and, in the case of much of Scotland, appear to be booming, the current political deadlock has posed some important questions for investors.”

While politicians continue to debate about what sort of Brexit they want, some people are trying to buy and sell homes, with Rightmove reporting that viewings are up on this time last year.

But Smith points out that there still several underlying issues of concern in the property market, namely that  prices are high relative to earnings and that interest rates are rising, compounded by exacting mortgage-market conditions.

He continued: “While the costliermarkets, in London and the south-east, continue to underperform we don’t appear to be facing a crash. Not yet, anyway.

“A disorderly Brexit may change all that and the gloomier forecasters predict prices might fall by 10% or even higher if we leave the EU without a deal.

“Homeowners looking to move might, perhaps think about delaying their decision until the current impasse has been resolved, but for people who make their living from buying and selling properties, holding-off may not be an option.”

To help guide you with your property investments, here are the answers to some commonly asked questions that Smith has received at Touchstone Education:

Should I buy now? At a time of relatively weak house-price inflation, you’re unlikely to be disadvantaged by waiting until there’s greater clarity in the market, but the situation is not so perilous that you should hold-off for fear of a collapse. Buying to rent is less of a risk than purchasing for a quick turnaround. You may not achieve the premium you expect in the next few weeks or months if Britain crashes out or if a decision continues to be delayed.

Should I sell now? The supply of homes for sale is at an historic low in many parts of the country so, if you have a property to sell, you could use this to your advantage. In parts of Gloucestershire, Buckinghamshire, Dorset and the East Midlands, for example, there’s a massive shortage of family homes. If you own a desirable property in a sought-after area, you could be sitting on a gold mine.

Is it taking longer to find a buyer because of Brexit? Rightmove reported recently that properties in the North East of England take the longest to sell - 85 days on average from listing to going under offer – while Scotland has the fastest selling times in the UK, at 53 days. Remember these are only averages and, in some hotspots, sales are taking less than a fortnight. There’s no doubt that, with the March 29 deadline for Brexit looming, many people will be waiting until afterwards to decideto buy or sell.

Can I test the market before March 29? Having a property listed for sale over several months can be a turn-off to potential buyers and dropping the price can be even more off-putting. One way to avoid creating a digital footprint is to ask an estate agent to advertise your property “off market”, by advertising it only to buyers on their database.

What can I do if my property doesn’t sell? Look at the asking price and consider how the property is being marketed. If it’s unfurnished, think about adding some decoration or furniture. Sometimes small adjustments to your schedule can make a big difference, such as changing the order of images or getting some better photographs taken.

Can bargains be picked up amid Brexit uncertainty? In some areas, price falls have been caused by non-Brexit related factors such as high stamp duty charges. It is still possible to negotiate a bargain, with the biggest discounts to be had in more expensive areas.Rightmove will tell you what prices you can expect to pay from comparable sales in each area.  PropCast looks at the number of properties for sale in each postcode area and calculates the percentage under offer or sold subject to contract.

Is it worth haggling? If a seller is being pressured to move, you’ll be in a better position to bargain, particularly if you’re not in a chain and you don’t need a mortgage. In many areas, sellers’ expectations are at their lowest for a generation, so buyers are in a particularly strong position. Don’t be tempted to buy a property just because it’s going for a song. There may underlying issues that would make it difficult to sell on, even in a buoyant market.

How can I mitigate against rising interest rates? Interest rates are increasing, and most estate agents expect them to continue rising throughout 2019. As a result, buyers are tightening their belts, with morere-mortgaging to lessen their exposure, moving to mortgage-free or cutting maintenance bills. More people are moving onto fixed-rate deals, but the clever money is against fixing for longer than five years as lots of external factors – including Brexit - could influence and change the market in the medium term.

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