Paresh Raja, CEO of Market Financial Solutions
23rd June 2016 – the date is already etched into the memory books. It was the day that the UK voted on whether or not the country was to remain in the European Union (EU). And, of course, the next day the public awoke to the news that the Brexiteers had emerged victorious.
While suggestions of a second referendum rumble on, it seems almost certain that the UK will part ways with the EU in the coming 12 months; the two-year deadline for the separation, triggered by the issuing of Article 50, comes in March 2019.
As we approach the second anniversary of the Brexit vote – one of the most momentous events in modern British history – it is worth exploring how the UK’s economy, and in particularly its renowned property investment sector, has fared in the intervening period.
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The initial storm
The EU referendum was not just significant for its shock outcome; it also set in motion a chain of landmark events. In the year that followed the vote, the UK saw a new Prime Minister move into 10 Downing Street, interest rates fall to historic lows, a snap election end in a surprise hung parliament and Brexit negotiations officially commence.
Yet the country’s economy weathered the storm resolutely. Chaos was predicted, yet GDP growth in both 2016 and 2017 remained at roughly 2%, which was similar to 2015. Furthermore, in June 2018 it was revealed thatemployment levels had increased, with 32.39million people in work – that represents a year-on-year increase of 440,000.
Of course, there have been issues and to ignore them would be misleading. Limited wage growth coupled with inflation has meant that employment figures do not tell the full story, while the impact of the pound falling in value against the euro must also be taken into consideration.
Yet amidst initial predictions of crumbling financial markets and mass disruption to people’s monies, the indication two years on is that the health of the UK’s economy remains in a stable condition.
Property prices continue to rise
A key contributor to the country’s GDP, the real estate sector has continued to perform well since the EU referendum. With demand for property remaining high and supply still a priority the UK Government is eagerly trying to address, house prices have steadily climbed over the past two years despite the uncertainty arising from Brexit.
According to data from the Office for National Statistics (ONS), in June 2016 the average house price across the UK stood at £212,887. By April 2018, this figure had jumped to £226,906 – a rise of more than £14,000, or 6.6%.
During periods of pronounced change or economy instability, property has traditionally proven to be a popular, reliable asset class for people to invest in. When combined with the unwavering demand from both first-time buyers and those keen to move up the property ladder and the marketplace has been able to maintain its progression in terms of rising prices; and although the rate of increase has been curtailed, this could be more accurately attributed to the Government’s clampdown on buy-to-let investors rather than any consequence of Brexit.
Mortgages on the decline
However, while property prices and rents continue to increase, there has been a fall in the numbers of mortgages being approved over recent months. It was recently revealed that the value of new commitments made by mortgage providers in the first quarter of the year was £61.1billion, a 5.9%fall from the fourth quarter of 2017.
More stringent regulations have made the process involved with securing a mortgage longer and more complicated in recent years. As a result, an increasing number of people are looking at options outside of high street banks for the finances they need to buy a home. In fact, a recent survey of 2,000 UK adults revealed that more than 40% of first-time buyers are turning to alternative finance to fund their deposit – popular sources include crowdfunding and offering ‘bonds’ in the property to investors with a guaranteed interest payment.
But the most established challenger to mortgages for property investors comes in the form of bridging loans. Annual bridging completions by members of the Association of Short Term Lenders now stands at roughly £4 billion, and it is rising all the time – for example, the value of loans written in the first quarter of 2018 increased by 32.5% compared to the same quarter last year.
Appetite for alternative finance within the ever-competitive property market is evidently growing. Indeed, while many financial markets continue to show positive signs of growth despite the negative predictions made after the Brexit vote, perhaps one of the most significant changes within the property sector over the past two years has been the broadening range of finance options now available to those keen to quickly seize on opportunities that present themselves.