On 29 March 2019, the UK is scheduled to leave the European Union (EU). Despite the profound significance of this event, little is known about how Brexit will be managed, and the prospect of a ‘no deal’ is being touted as an increasingly likely outcome.
Despite such uncertainty, the UK property market has proven resilient, with residential real estate remaining in high demand. To what extent, then, is Brexit likely to affect the country’s buy-to-let market?
Demand for rental property will continue
2017 was a record year for the rental sector – with a growing number of renters, the total amount of rent paid to landlords rose to £1.8b, according to a Countrywide report.
Looking ahead, there is little reason to believe that Brexit will undermine demand for rental property. After all, the UK’s departure from the EU will not alter the fundamental facts that there are vast numbers of people wishing to rent a limited number of properties across the country.
Indeed, with housing demand continuing to outplace supply, investor demand for BTL properties remains strong.
A 2018 survey by Market Financial Solutions revealed that 53% of UK investors would rather invest in traditional asset classes such as property in 2018 instead of newer assets, such as cryptocurrencies, with 63% regarding property as a safe and secure asset in the current market.
Stricter lending measures
While demand for property investment is likely to remain high, there could be other consequences from Brexit on the BTL market.
In an effort to stabilise the UK economy and conservatively prepare for the aftermath of leaving the EU, high street banks have introduced stricter regulations making it more difficult for prospective buyers to secure mortgages. And the time pressures faced by buyers to quickly complete on a housing purchase – driven by the high level of competition in the property market – has made these mortgage restrictions even more burdensome.
A revision to lending rules, for instance, has seen the introduction of a “stress test” for borrowers, which requires borrowers to prove that they could withstand higher interest rates.
The recent interest rate hike is also likely to have concerned prospective buyers, potentially putting certain mortgage products out of their reach. While the increase will not significantly impact the cost of borrowing, it will no doubt add pressure to household finances and increase the amount of repayments placed on a household.
BTL investors seeking credit from banks to finance their property acquisitions could feel the effects of this development in the mortgage space.
A boost for the buy-to-let market
Ultimately, despite the uncertainty and some gloomy predictions, it is important to recognise that Brexit could be a huge opportunity for property buyers and investors, and the strong buy-to-let market is a good indication of this.
Following a slowdown in the growth of the UK’s housing market in the immediate aftermath of the referendum, conditions have recently picked up again. According to Halifax data, the average house price in Britain reached a new high of £230,280 in July 2018 – a positive signal for those looking to invest in a property.
For those looking to take advantage of opportunities available within the residential real estate market, alternative finance options are on hand to help individuals or businesses overcome the mortgage restrictions currently enforced by banks.
Alternatives such as bridging – fast, short-term loans – can give buyers and investors the flexibility needed to secure a property acquisition. And in a competitive market, flexibility is key when it comes to taking advantage of real estate opportunities.
Opportunities lie ahead
In the days following the EU referendum, there were concerns UK investors would be less inclined to consider property investment. However, despite the uncertainty surrounding Brexit, the UK’s residential real estate market has proven resilient, with investors still being drawn to real estate as an asset that is able to provide safe and secure returns.
Looking to March 2019, investor appetite for property investment opportunities, such as buy-to-let, is likely to remain strong. This makes access to finance particularly important, and stricter lending measures from high street banks means that investors need to be aware of alternative finance products should they wish to confidently and quickly act on their property intentions in the months and years ahead.
Paresh Raja is the CEO of Market Financial Solutions.