It is all about Brexit whenever the United Kingdom is mentioned in the news. A few years ago when people were protesting for Brexit, no one thought it will be as complicated as it is today. Experts have been analyzing how the UK economy, as well as the real estate market, will be affected when the region finally pulls out of the EU. Of course, no one knows for sure. It is all speculations. When Brexit finally happens, the impact may be worse than predicted or not even bad at all. The best anyone can do is to get prepared.
There are some who believed that the UK is already heading towards post-Brexit meltdown. These people believed that things could get worse especially in the real estate sector following Brexit. To get insight into what prices would happen after Brexit, experts have been analyzing data from the pasts. One of such data analyzed by experts is the effect of the early 1990s recession on the UK economy.
“It was very tough,” says Sue Edwards, a debt adviser for Citizens Advice in London during the recession in the 1990s. According to her, people were coming in with sacks of unopened bills and letters from creditors. During this period, the prices of houses in the South-east area of the UK fell by nearly 36%. It was so bad that 75,000 homes were repossessed by banks. Unfortunately, the problem gets worse in the years that followed. In 1993, it was reported that about 1.6 million people are in negative equity.
A recession usually leads to a sharp rise in interest rates. What this means is that homeowners will see steep increases in mortgage payments. This was exactly the situation back in the UK during the 1990 recession. According to Edwards, during this period, a desperate few posted their home keys back to banks in the mistaken hope that it would clear them of their liabilities. Another UK financial analyst, Neal Hudson says that the situation in the UK during the 1990 recession is unlikely to happen again. He argued that policymakers have learned their lesson and have gotten better at dealing with these things.
Today, fewer people have mortgages in the UK unlike in 1991 were 42% of homes in the UK were mortgaged. As of 2017, only about 28% of homes in the UK have mortgages. Again, tougher lending criteria were introduced after the 2008 financial crisis. These lending criteria make loan less risky now unlike the case in the 1990s.
Another expert who lends his voice to the debate is Simon Rubinsohn, chief economist at RICS, the chartered surveyors’ professional body. He pointed out that the UK does not currently have an inflation problem.
According to Rubinsohn, it is likely that similar policies introduced after the global financial crisis will be used in post-Brexit to avoid another financial meltdown. These policies include cutting down interest rates as well as embarking on another round of quantitative easing.
Nonetheless, London’s housing marketing has largely frozen up as the discussion for Brexit continues. In 2018, the statistics made available by LonRes (a data group) showed that transactions of high-end homes in London reached a decade low. In January 2019, the year-on-year house price growth was at its lowest in 6 years. This was revealed in a data made available by the Nationwide index. There is no doubt that Brexit has led to huge uncertainty in the real estate market. Even homeowners and real estate companies are reporting a ripple of activity on the higher value properties in London.
Perhaps, the reason for this uncertainty in the market is that the big players in the real estate market have largely adopted the wait-and-see approach as talks for Brexit continues. What is clear so far is that London’s once-buoyant housing market is facing a “prolonged downturn” as political uncertainty continues to impact consumer confidence. Big real estate companies are already reporting losses. In one case, a big real estate company reported losses of £17.2 million. Perhaps, this could be good for some buyers. Take, for instance, Ken Griffin – founder of the US hedge fund Citadel, bought a home near Buckingham Palace for £95m in 2018. This amount is reported to be £30m less than the property’s latest asking price.
There are experts who are of the view that the UK real estate market is falling in real terms. However, this is only happening in the more expensive parts of the country such as London. To pull a significant number of first-time buyers to the table will require more significant retreat in prices.
Final Words
There is no doubt that the actors in the UK real estate market are facing uncertain times. Times like this, smart companies thrive by adopting the smart approach. This smart approach includes promoting your business more aggressively but smartly to attract foreign interests. This can be done by using music for your real estate videos in marketing. With good marketing, your company can be isolated from the uncertainty in the market.
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