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Brexit 6 months on – what difference has it made?

UK property investing post-Brexit
Dec 12, 2016

When, on June 23rd, the UK voted by 52% to 48% to leave the EU, there was an air of disbelief on both sides.

No country had left the EU before, so nobody knew what to expect.

So now, six months on, where are we?

Brexit and UK property investing in 2016

To start with, we have a new Prime Minister in Theresa May, who succeeded David Cameron after his post-vote resignation.

She has said that Article 50 (the start of two years of formal exit negotiations) will be triggered by the end of March 2017, meaning that in theory, we should be out by the summer of 2019.

This has been successfully challenged in the High Court, but an appeal is now being heard at the Supreme Court.

There haven’t actually been any official talks yet between the UK and the EU about Brexit, so we’re still pretty much where we were in June.

Economic development continuing strongly

Strong economic development

Growth did slow after the vote, but less than anticipated. Growth forecasts for next year have been revised downwards by 0.8%, but remain positive at 1.4%.

After the result, the pound plummeted to a 30-year-low against the US dollar, and to a three-year low against the euro.

A cut in interest rates means that there won’t be a rapid recovery in exchange rates, which currently stand at around $1.25 and €1.18.

However, this helps exporters as it makes their goods cheaper for overseas buyers.

It also helps the UK tourism industry, making a visit to Britain much more affordable.

Significant rises have already been reported in inbound flight bookings; and where there are inbound flights, there is increased demand for quality accommodation.

Our new build luxury development of Serviced Apartments, Westbeach, will be a clear beneficiary of this. It sits in a prime beachside location in the UK’s most popular region for tourism.

And, on top of the increase in foreign tourists, many more UK citizens will be opting for the cheaper option of holidaying at home.

On the High Street it’s pretty much business as usual; retail sales in August were up 6.2% year on year. The Office for National Statistics feels that the figuresdo not suggest any major fall in post-referendum consumer confidence.

Economy-boosting measures by the Bank of England have included cutting interest rates from 0.5% to 0.25% – an all-time low – and extending its quantitative easing programme by £70bn.

House-buying has remained largely unaffected, although the number of homes on the market is as low as it’s been in a long while.

The Royal Institution of Chartered Surveyors says buyer demand rose in September for the first time in seven months.

There was a slight rise in unemployment between June and September, but this was tempered by positive news from Nissan, ARM Holdings, GlaxoSmithKline and McDonald’s – all of whom will be creating a significant numbers of UK jobs.

The Chancellor’s Autumn Statement

Optimistic property investment environment

But the first real insight into the post-referendum economy came on November 23rd, when the Chancellor made his Autumn Statement in the House of Commons. Key points include:

  • New economic forecast: growth to remain positive but slower over the next two years, with a rise in inflation. However, employment is forecast to rise in each of the next five years, with half a million more in work by 2021
  • Debt falling by 2020: the target for a budget surplus has been deferred. New targets aim for a two per cent underlying deficit and debt falling by 2020, with a balanced budget as soon as possible
  • Fuel duty frozen for a seventh year
  • Raising tax allowances and thresholds: the income tax threshold will rise to £11,500 in 2017, and the higher rate threshold to £45,000
  • National Living Wage increase: from £7.20 to £7.50 for those aged 25 and over
  • Ban on letting agents’ fees to renters: another move to make the buy-to-let sector more complicated
  • National Productivity Investment Fund: to provide £23bn of additional spending, ensuring the UK economy is fit for the future
  • Housing Infrastructure Fund: £2.3bn for roads and water connections for 100,000 new homes where they’re most needed, plus £1.4bn for 40,000 new affordable homes. A further £1.7bn will speed up house building on public sector land
  • Future transport technology: £390 million investment in areas including driverless cars, renewable fuels and energy efficient transport
  • Major investment in transport infrastructure: including £1.1bn to reduce congestion and upgrade local roads and public transport; £450 million to trial digital railway signalling technology to improve capacity and reliability
  • Full-fibre broadband and 5G network trials: £1bn investment
  • £2bn per year in Research & Development funding for universities and businesses
  • Scotland, Wales and Northern Ireland infrastructure: £1.45bn increase
  • Cutting corporation tax to 17% by 2020: the lowest rate in the G20 will benefit over a million businesses
  • £400 million for innovative small business growth via the British Business Bank
  • Tax avoidance crackdown
  • Fairer salary sacrifice schemes

The overall response to the Autumn Statement was quite positive, especially from business and industry:

“The Chancellor has prioritised a pragmatic down payment on future productivity growth. His emphasis on R&D, housing and local infrastructure will help businesses in all corners of the UK to invest with greater confidence for the long-term, during turbulent times.  This will be warmly welcomed.”

– Carolyn Fairbairn, Director-General, CBI

The six months since the referendum haven’t really made the implications of the result much clearer; by and large, though, the initial predictions of descent into economic meltdown have remained unfulfilled.

However, we have since seen another political bombshell with the election of Donald Trump as President of the United States – again, a result which took everybody by surprise.

Brexit-proof  UK property investments

Brexit-proof property investments

As it is, the UK’s higher education system is admired all over the world and the English language environment makes Britain a preferred destination for overseas students.

On top of this, the weakened pound makes a UK university education all the more affordable, as it does leisure travel.

It is highly likely that the UK property market will represent a safer haven for investors from the choppy waters of international uncertainty; but Britain’s housing shortage throws up its own obstacles.

In order to free up family accommodation, central government and local authorities are actively discouraging traditional buy-to-let student and holiday property investments.

The government has accordingly imposed a Stamp Duty surcharge on the purchase price of any secondary residential property.

And in many areas, local authority planning permission is then required to convert a dwelling into a house in multiple occupation (HMO) – permission which under strict Article 4 conditions may well not be granted. A renewable licence has to be applied for – and paid for.

However, to encourage students and tourists away from the residential sector, Purpose Built Student Accommodation (PBSA) and Serviced Apartments are classified as commercial property, and are thus exempt from any Stamp Duty below £150,000.

PBSA and Serviced Apartments represent two of the highest yielding sectors in British commercial property; and whatever happens here or elsewhere, they will remain essentially Brexit-proof.

View our available UK property investments.

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