“On the morning of Friday 24th June the unexpected Brexit vote sent markets tumbling. The pound dropped to a 31 year low, house builders and banks were hard hit. Prime Minister David Cameron resigned. Economic commentators gazing into the crystal ball are predicting though times ahead. What will this mean for the property investors?
On Monday it was announced that construction Purchasing Managers’ Index (PMI), a leading indicator for construction activity, for June dropped to 46, its lowest since 2009. Forecasters had been expecting 50.7. As figure less than 50 means negative growth then this demonstrates a dramatic slowdown in house building ahead of the Brexit referendum. Current uncertainty in what post-Brexit Britain will look like is unlikely to lead to a pick up any time soon.
Evidence is emerging of funding to property investors and developers being cut as some foreign investment has been spooked. At Morgan Chex, my specialist alternative financial loan company, we have had an increase in enquiries from property developers who are now looking at alternative lenders. Financial Times reports that Standard Life has stopped investors withdrawing cash from its commercial property portfolio fund. Political and economic uncertainty are making investors nervous and causing them to tighten their purse strings.
With such doom and gloom, some economic commentators are predicting a recession. However, the Bank of England is ready to move. The expectation is now for more quantitative easing and even lower interest rates. Chancellor George Osborne is considering emergency tax cut for corporates to protect inward investment. Less than 15% tax would make UK one of the most attractive countries in the world – from tax point of view perhaps shielding UK from some of the expected job and investment cuts. However if other countries follow suit, it may not have the desired impact and the main beneficiaries will be large corporates. Some commentators are calling for the government to provide stimulus via increased spending and infrastructure investment instead. There are even whispers of back tracking on the much criticised removal of landlord tax relief. Fingers crossed!
In the last recession, bank lending to property investors all but disappeared. Lenders on the Morgan Chex panel have been quick to reassure clients that for them it is business as usual. Some property lenders have even responded by cutting rates to generate more demand!
UK population is set to grow by 10 million in the next 25 years. 68% of this due to immigration. Given over half of the immigration is from outside EU, Brexit may not have such significant impact on population growth. Furthermore the number of households continues to increase, from 23.7 million in 1996 to 27.0 million in 2015. Driven by population growth as well as increase in one person households. Demand for housing will continue to grow.
It is estimated that Britain needs to build minimum of 250,000 houses per year to solve the housing crisis, but just over half of the required houses are being build. Recent Construction CPI numbers show a rapid slowdown in house building activity. Unless house building radically improves supply will remain restricted.
It may well be that Brexit will lead to uncertainty, job losses, reduction in house prices, or reduced credit availability. However, fundamentally Britain’s housing crisis is far from being solved. Demand will outstrip supply and in the long run that will support higher prices and rents.
Uncertainty will create opportunities, if buyers pull out of the market, motivated sellers may well be willing to agree a deal. Shrewd, courageous investors will be able to take advantage. It may be wise to focus on hunting down bargain properties and not use excessive leverage to cushion against price drop. In the short run capital values may soften, but long term demand and supply still suggest property is a good bet. Fortune will favour the brave.
To discuss finance strategy for your property investment journey contact us at Morgan Chex Commercial Finance Limited. You can email me at Laura@morganchex.com, find me on Twitter at @ChexLaura or you can like us on Facebook https://www.facebook.com/morganchex“