We have been trying to get some sense of the impact on the buy to let market as a result of the referendum. As with almost every other sector the ‘debate’ is characterised by wild statements and prophecies of doom. We have tried to objectively summarise below the key factors which we think are likely to have an impact on the property sector:
Finances of UK PLC
The value of property is directly linked to the ability of people to pay for it, either as a buyer or renter. With a couple of small exceptions almost every forecast from credible and independent organisations such as Bank of England, IMF etc., has said that a Brexit would cause the UK a financial problem, ranging from bad to downright catastrophic. We don’t pretend to be economic experts; however we do know enough to know that they can’t all be wrong or deliberately lying.
What they say is any such decline in national finances is likely to lead to a rise in interest rates. This would mean the interest payments on our national debt would profoundly increase, some saying to the point that it would increase by more than the amount we pay to be in the EU.
It is obvious that any interest rise would have an adverse impact on landlords who have any borrowing (statistically most of them), plus the ability of people to afford to buy homes, which is likely to suppress property values. And that is before the impact on the property market of any other economic factor is considered.
There is clearly a great deal of concern about immigration. Whether this presents a problem depends largely upon where you live. The facts are that more than half of the people who come to the UK are from outside Europe. There is already a points based immigration system for these people. Also the recent Right to Rent controls make it very difficult for illegal immigrants to secure a home, with the agreed changes to benefits making it even harder for EU migrants to claim benefits. In our direct experience the EU people who rent through us have been generally good tenants, paying their rent from earnings and looking after the property.
During our preparation for this summary we established an interesting fact. Norway and Switzerland are outside the EU but trade with the EU. In order to trade with the EU they have agreed to the same open borders as EU members. For every 1,000 people in Norway there are 11 people from the EU, in Switzerland there are 7 for every 1,000. In the UK there are 3 people for every 1,000.
As far as we can see there are few rules landlords and tenants have to follow in relation to their property which come from Europe. The recent changes of requiring water safety risk assessments, the addition of smoke alarms, changes to stamp duty and tax relief are driven a government concerned that the rental market may ‘overheat’. Therefore there has been a series of measures to suppress growth in the rental market to maintain an overall balance. Whether you believe these are the right tools or not, there is general agreement that this is not an issue from Europe.
Part of the challenge we face is the referendum forces a black or white decision on an issue which has many shades of grey. It appears the citizens of the UK are generally not fans of the EU. However we have that wonderful British culture of being healthily critical of many issues, our own political system included. As a nation we also recognise that just because something is not perfect does not mean we would be better off without it. Churchill’s famous quote is applicable:
“Many forms of government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all wise. Indeed, it has been said that democracy is the worst form of government, except for all the others that have been tried from time to time.”
However the purpose of this update is to explain our view of the impact on the housing sector as a result of the referendum. On balance we believe the facts suggest a Brexit would be a greater risk than a remain vote. That does not mean we think the EU is great, or that we believe the UK is subservient or weak, simply that the risks to the property market of leaving are greater than the risks of staying.
The only thing we can say for certain is that if you have the right to vote then you should exercise this right and privilege, whatever your views.
Enjoy making your decision and placing your valuable X!