What will the referendum mean for the property market in the UK?

The referendum brings about uncertainty when it comes to the UK's property market. 

With the June 23rd polling date looming ever larger, debate and the reporting of the EU referendum and potential Brexit is more prominent than ever, with experts from each side giving their opinion about what the possible departure from the Union would mean for the UK.

Financially, a lot could change if we were to leave the EU, and this is as true for the property sector as it is in any other. Even with the referendum months away, speculation is rife about what the outcome would mean for the market; so what is the reality of the referendum, and what would Brexit mean for property investors across the UK?

Uncertainty in the market
While most people have an eye on what will happen post-referendum in the property market, regardless of outcome, it's important to remember that one of the biggest fallouts from any election process is the uncertainty that comes in the months beforehand.

We saw this across the UK last year, when the run up to the general election in May was filled with warnings about what each outcome could mean for the property market. It meant that there was a real slowing in purchase activity in the early part of the year as people elected to wait and see if Labour's proposed mansion tax was to become a reality, before there was an immediate rise in the days after the result.

Peter Rollings, chief executive officer at Marsh & Parsons said this is true of any period of political uncertainty, and he expects the run up to the referendum to be no different.

"First and foremost, foreign investors may be more tentative given this latest turn in events, especially as it follows hot on the heels of higher Stamp Duty for million pound properties," he said.
The good news, of course, is that uncertainty is only ever a short-term issue in the property market. "History shows us that the market recovered quickly from this short term ambiguity in 2015 and in fact, home sales have really been building momentum over the past year. The property market is chock-a-block with eager buyers," Mr Rollings added.

The Brexit effect
While uncertainty is short-lived in a political sense, one thing is certain, should voters opt to leave the EU, there would be a much more significant impact. Experts expect that a vote to stay in the Union would see the market return to normal very quickly, but the opposite outcome would lead to many changes.

Richard Donnell, director of research and insight at Hometrack, told IBTimes UK that the reality is that no one can really say with absolute certainty what changes would come into play, but that a number of factors would influence what happened.

The biggest risk to the housing market would be a sharp change in interest rates as a result of a Euro exit, which could potentially see the cost of investing in homes rise quickly, pricing many out of the market.

Investment levels could also be harmed, according to Mr Donnell, by the fact that being without the safety net of the EU would put many investors off. He said that there would be many who decided not to spend big simply because of the arrival of the unknown.

"If the government wants to build more homes, wants to create a stable housing market environment with more mortgage lending, more investment in housing, attracting external sources of investment into housing… then uncertainty and turmoil mean you might not get as much investment as you necessarily might get with stability," he said.

One of the biggest knock-on effects of Brexit, however, would be the potential for London to lose its position as the safe haven it has been seen as ever since the recession. In the immediacy of Boris Johnson announcing his support for Brexit, sterling fell to a seven-year low against the US dollar, and Goldman Sachs and Citi both warned that leaving the EU could see the pound's value fall by as much as a fifth.

The reality is that this could see many overseas investors with property assets in London looking to cut their losses and exit the market rather than waiting to see if it recovers again, which could really damage its important reputation moving forward.

"For sterling… this won't be a fun time and it's more the uncertainty that will weigh on the currency, rather than investors taking a view on the outcome and the implications for the economy, which are hard to argue either way," said Simon Smith, chief economist at FxPro, a foreign exchange broker. With almost half of all London's property investors coming from overseas, such problems for the pound could be very problematic for the capital.

This article has been provided by leading UK property investment specialist Experience Invest.