Doubt and uncertainty are no friends to risk-averse investors, and one area where confidence is always welcome is in real estate, whether you’re buying properties to rent out or to renovate and sell on at a profit.
Any fall in house prices runs the risk of pushing your portfolio into negative equity, with severe consequences for the liquidity of your real estate holdings.
But with Brexit looming on an ever-receding horizon, what can property investors and landlords expect if and when Brexit Day actually arrives?
No lack of confidence
Perhaps surprisingly, property prices in the UK have held up well since the EU Referendum result was announced.
ONS figures show that in June 2016, the average property in the UK was worth £214,000, which grew to £228,000 by the start of 2019.
The economy has also proved more robust than some economists anticipated, and short-term drops in GDP along the way have yet to evolve into longer-term recessions.
Property itself is typically a long-term investment, with more value in landlord portfolios than in individual houses redecorated and priced for a quick sale, although both approaches have their relative merits and their devoted followers.
Unlike some sectors, real estate is a market that covers the UK as a whole, with healthy transaction rates in the regions bolstering performance when the London market experiences a slump.
This is good news if, for example, Brexit results in an exodus of EU citizens out of British cities with an associated hit on house prices in the most densely populated urban areas.
Look north for value
Some of the best value can still be found in the north. Cities like Manchester, Liverpool and to an extent Birmingham offer the benefit of lower prices influenced by the historic north-south divide.
Yet they are also thriving metropolitan areas and home to plenty of the kinds of businesses you might normally expect to find headquartered in London – finance, insurance, tech and multinational brands.
Even London-based firms often have a branch headquarters ‘up north’, adding value to cities in the Midlands, North West, Yorkshire and the Humber, and as far north as Newcastle and into Scotland.
All of these businesses need employees, suppliers and so on, injecting important value into their local economies and driving demand higher for well appointed properties on both the private rented and sale markets.
The potential impact of Brexit depends on the kind of deal – or No Deal – that governs the UK’s withdrawal, while a change of government could yet lead to a second referendum and even the cancellation of Brexit completely.
Until the precise details become apparent, landlords and property investors will be hoping London and the regions continue to defy the critics by posting house price increases in spite of the Brexit uncertainty, or perhaps also because of optimism among Leave voters.
Property and party politics
With the prospect of a general election at any moment – if the main political parties can agree that they want one – which party has historically been the best for landlords?
Lettings agent Benham and Reeves looked back at the Labour and Conservative governments (including coalitions) since Tony Blair became prime minister in 1997, in order to see which party had the most positive impact on yields for landlords.
The picture is mixed, with rents up substantially over the past two decades but house prices also up considerably, keeping yields lower than they might otherwise have been.
Under Labour’s 13 years in power, rents hit an average of £437 a month, while under the Conservatives they reached £767, an increase of 3.4% for each year of Tory rule.
However, rents actually rose faster under Labour, at 6.7% per year and nearly 87% overall.
Factor in rising house prices and landlords saw yields fall by 2.6% per year under Labour and 0.3% under Conservative prime ministers, at an average yield of 4.5% since 1997 as a whole.
Depending on how Brexit works out, it’s hard to predict what form the next UK government will take, including the prospect of a quite unusual coalition.
However, with the long-term average yield on rental properties staying close to the 4.5% mark regardless of who has been in power, landlords will no doubt be hoping to see it stay above that figure and perhaps edge closer to 5% and beyond.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.