Little to no change: A Brexit case study

Little to no change: A Brexit case study

With only a couple of days to go before the British public gets to decide on the country’s membership to the EU, some might wonder what will happen to the UK’s property market in case the leave campaign wins. Well, we’re glad you’ve asked.

According to recent polls by ICM, YouGov and ORB, the leave campaign is currently ahead by a couple of percentage points. This means, with one week left until “Referendum Day” having a closer look at what a Brexit might actually do to the British property market might actually be worth exploring.

The Brexit scenario

The exact repercussions of the UK leaving the EU are currently still very unclear. The main reason for this being the fact that if Britain actually “brexited”, it would be the first major nation in Europe to do so.

Due to this uncertainty, the following possibilities are mere “what if”-scenarios which are very likely to happen:

1. The UK becomes member of the EFTA and EEA

Countries with similar agreements in place are Iceland, Norway and Liechtenstein. Being a member of the trade agreement and the economic area would give the UK the option to trade freely with the EU as well as allowing free movement of goods, people, services and capital.

2. The UK becomes a member of the EFTA but not the EEA

A country in a similar situation is Switzerland. In this case, the UK would make all economical agreements separately, basically on a case by case or country by country basis. Switzerland currently has more than 120 of those agreements in place.

Leaving the EU, regardless of the kind of future membership, would always be a very slow process, which would also lead to a very slow change in the British property market, if there is any at all.

Why won’t there be a lot of change?

Whether or not Britons decide to stick together and stay in the EU or prefer to form their future more independently, one thing will stay the same: the British property market.

The British property market is quite some beast. In three ways.

1. Property prices

Despite the fact that the country was dragged into a rather significant economical crisis less than ten years ago, property investors overcame all of the minor hiccups along the way. This interest by investors led to a steady rise in property prices over the last couple of years, in cities like London of up to 20% in 2012, 2013 and 2014.

Current property prices stand at an 8% increase on the previous record high from 2007, before the financial crisis hit.

2. Interest rates

Interest rates in the Uk have been sitting at 0.5% for the last seven years. To put this in context, the last couple of times when house prices were sky-rocketing in the 80s, 90s and early 2000s, interest rates also increased to 9%, 6% and 4% respectively.

And if history has taught us anything, it’s that the Bank of England has a long way to go before it plays its part in sending property values into reverse again.

3. Demand supply gap

Adequate housing in the UK has been chronically undersupplied since the 1950s, with data suggesting that the shortage comes up to about 100,000 houses every year. And even if the UK closed its borders entirely, the country’s population growth would still outstrip its housing supply. This is simple due to the fact that people are living longer, more babies are being born and not even mentioning the 25% of households which are now in single-occupancy.

Demand will therefore continue to outstrip supply. The possibility of a Brexit actually becoming a reality won’t change this at all.

And even if this debate is full of speculation and thin on facts, one thing is for sure: greater demand than supply always leads to higher prices, regardless of the product we’re dealing with.

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