Brexit is a unique scenario that impacts every aspect of the UK economy. Is buying property in the UK after Brexit still safe? How does it affect investment options?
Generally speaking, UK property is a stable, safe and high-performing asset class.
Over the last few decades, investors have enjoyed both high yields and high, sustained capital growth while other markets have been less resilient to macro-economic conditions.
But what about Brexit?
What's happened so far with Brexit and UK property?
Although the UK has now officially left the European Union, it’s actually been 6 years since Brexit was an inevitability. Since the referendum result back in 2016, a top-level look at the UK property market would actually highlight a period of growth.
True, the growth is slower than the previous 6-year period, however, the timing of Brexit has coincided with a pandemic and a global slowdown.
Property prices since Brexit
Across the UK, property prices actually increased by almost 15% since the vote in June 2016 and Brexit.
Much of this growth has been driven by prime regional cities such as Manchester and especially Birmingham.
It was widely predicted that the London market would suffer most, mainly due to the facts that prices in the capital were already inflated far beyond the rest of the UK, and London is still the site of most overseas investment – the implication being that this would dry up post-Brexit.
This has not happened.
London has performed well since Brexit with a standard increase in value of 3.5%.
Remember, these top-level prices masque much of the nuance that investors should be analysing, but they are useful context.
Since the UK left the EU and the uncertainty disappeared from the market (as much as it could during a subsequent pandemic), performance has gone from strength to strength.ir
Buying property in the UK after Brexit: Property prices 2021 to 2022
We now have over 12 months’ worth of data to assess since the UK left the EU.
Yes, there have been significant fluctuations across the market during that time, but according to the latest Land Registry data, the average UK property is valued at almost £270,000, which equates to an annual gain of £18,000 (half the average salary in the UK) and capital returns of 10.17%.
This represents the highest ever average value in the UK.
Buying property in the UK after Brexit: Property performance forecasts
So, what are forecasters predicting now? Where does the market go from record values?
Onwards and upwards.
Although nothing is certain when investing it is safe to say the impact of Brexit is no longer the prime concern among the British investment community. The past 24-months performance amid a pandemic and cost of living crisis in the UK has again shown the resilience of the UK property market.
As we move forward most experts are predicting regional growth of circa 20% by 2026. Again, this pace is slower in the prime London market, but even in the capital investors can find hotspots.
Because the UK’s departure from the EU was always set to be a multi-year process, investors cannot entirely dismiss Brexit’s impact. However, most economic barometers do show the pressure has dissipated and most British investment markets have recovered to record growth – both the property market and FTSE are higher now, for example.
Brexit and overseas investment
Much of the commentary around Brexit and real estate is UK investor-centric. However, overseas investors contribute a significant amount to the UK housing market.
Almost 250,000 residential properties across England and Wales are now registered to overseas individuals. This corresponds to about 1% of residential titles and has increased significantly throughout the Brexit period. In fact, in 2010 when the figure stood at just 0.4% of UK property.
Why is this?
The underlying supply and demand dynamics of UK property are unique and thus, performance is hard to match in many international markets, but Brexit itself has also played a part in recent years.
In the immediate aftermath of the Brexit vote, the value of sterling tumbled as uncertainty set in. This forex window meant UK property became much cheaper to many overseas purchasers, particularly those USD buyers. Significant transaction volumes were recorded and investors did secure prime UK real estate assets at what was basically a 30% discount.
The USD-GBP axis has tightened since the referendum, but as we enter 2022, again the dollar is again rising on the pound and significant savings may be on offer – relatively to post Brexit prices.
Where in the UK to invest post-Brexit
Brexit has not changed the underlying factors that dictate whether an investment in UK property will be successful or not.
Investors assessing an acquisition in 2022 should still be analysing the same criteria they would have analysed back in 2015 – certainly in terms of location and wider city-region.
Consequently, the same markets represent good value. London and Manchester remain firm favourites with investors, as they were back in 2015. Both markets have a high volume of young renters that drive the demand for rental property close to city centres and transport links.
In Manchester, investors can expect annual appreciation of between 6 and 12% and yields around 6%. London offers more modest returns, but pockets such as Kensington and Chelsea and Battersea are still in high demand.
Since Brexit, Birmingham has also established itself as a top-tier investment city. Average property prices in the city are slightly more affordable at £215,000 and average yields push 7%, which are some of the highest in the whole of the UK. Furthermore, from a capital growth perspective, no other city in the UK has outperformed Birmingham over the past 12 months and last year investors with Birmingham real estate saw assets prices rise by 12%.
How to invest in UK property post Brexit
Invest in Tier 1 markets or cities you are familiar with
Post-Brexit the world is a different place and many people buying property in the UK after Brexit are doing so to diversify portfolios away from more volatile assets.
Many regions in the UK have enjoyed stellar years in terms of return on investment in recent times – Aberdeen and Liverpool for instance – but London, Manchester and Birmingham continue to offer more stable, sustained and consistent returns.
If you want to diverge from these tier 1 cities, ensure you are comfortable with a cash flow that could potentially be more turbulent.
Assess the tenant market
The UK’s private rented sector is at record size and regularly rental yields are an important factor when determining the overall performance of a real estate asset in the UK. Although London, Manchester and Birmingham all have huge pools of tenants residing in the city, they are big cities, with many local variations within them.
Streets close to universities and major work hubs are ideal, but if you are unsure, the vibrancy of an area’s high street continues to be a strong indicator of the location’s demographic and potential.
Use an experienced agent
Post Brexit and amind wider economic uncertainty, it’s more important than ever to choose a specialist agent. Expert help can directly impact the success of an investment and your ROI bottom line.
Markets are changing from day to day and overseas investors, in particular, can save a lot of time and money with the use of an experienced agent.
Invest for the long term
Given the post-Brexit forex window (and to a lesser extent, the recent stamp duty holiday in the UK), many investors have acquired property at below market value and have secured very strong immediate returns.
Despite this, the fundamentals of investing in property remain true – invest for mid to long-term growth. Although Brexit is a once in a lifetime event, it shouldn’t alter your investment plans or requirements.
Indeed, as we’ve mentioned, historically UK real estate has been considered one of the best places to invest over time. It has a track record of being more robust than stocks, shares and other assets because its supply and demand dynamics are driven by population growth and the necessity for somewhere to live.
If you’d like to learn more about buying property in the UK after Brexit, please get in touch.