While there is no wide consensus on the likely outcome of the referendum,– the choice championed by Prime Minister David Cameron. There is however also high profile support for a withdrawal, which was bolstered last month by Mayor of London Boris Johnson throwing his political weight behind the Eurosceptics.
As campaigning on both sides of the argument gathers pace, we take a look at what the next few months might have in store for the UK’s property market.
Consequences of a Brexit?
The effect of a Brexit is hard to predict, a fact that’s clear from the wide range of opinions from political and economic analysts.
All would depend on the length of time it takes to transition and negotiate favourable treaties and agreements to replace those that currently apply to all EU member states. This would be a complicated process and, if the pro-Brexit camp is to be believed, the eventual outcome could very well be positive for the UK economy, but it would be a considerable time before we can find that out for sure.
Air of uncertainty in the short term
As we saw in the lead up to last year’s General Election in the UK, some property investors will be likely to take a ‘wait-and-see’ approach, preferring to hold off on buying until there is a more concrete prognosis.
Others will take the longer-term view that demand for well-located property in the UK will continue to grow, regardless of the referendum’s outcome. As we saw in 2015, any pre-referendum lull will likely be followed by a surge of activity as the ‘wait and see’ investors move in.
The Brexit debate is already impacting foreign exchange markets, which are very susceptible to the influence of immediate changes and short-term risk. The Sterling hit a seven-year low against the US Dollar in the wake of Boris Johnson’s pro-Brexit announcement last month, and the currency is expected to decline further between now and the referendum.
For those purchasing UK property in currencies pegged to the US Dollar, this short term volatility in fact creates an opportunity to benefit from greater buying power. As an example, those purchasing a GBP350,000 UK property with US Dollars on 1 March 2016 would save around USD40,550 compared to the same property purchase at the beginning of October 2015. This represents a saving of 8%.
Also beneficial for property investment is the now very likely outcome that the Bank of England will not be raising interest rates from their currently historic low levels in the short-term, keeping the cost of borrowing down.