Property Crowdfunding and no-deal Brexit, what to expect?
In a nutshell
Whatever your opinions are over the United Kingdom's withdrawal from being a member of the European Union, it is undeniable that Brexit has polarised the country more than anything else in recent political memory. Not only is the British public divided to a level when families' opinions have been split down the middle, but the disharmony seen in The House of Commons at Westminster has caused a timeline of systematic inter-political party shake-ups on a near seismic scale.
There are so many factors about Brexit which are worthy of analysis, but within the sector of Alternative Finance, and particularly Property Crowdfunding, what are the possible implications for the UK property market as a no-deal Brexit looms large?
A background to Brexit
Since the referendum result on 23rd June 2016, where, by a majority of 51.9% to 48.1%, the British people voted to leave the European Union, it is fair to say that uncertainty and sensationalism have reigned supreme, and that the United Kingdom has been more divided, politically and economically, than ever before in living memory.
This is not solely restricted to the UK however, and the repercussions around the globe have been substantial. Most of these ripples have been noticed amongst the other 27 member countries of the European Union across the English Channel and the North Sea, and each of them are making their own preparations for when the UK leaves the EU, possibly without a deal.
So, before we hypothesise about what may happen under such circumstances, let's first establish what a no-deal Brexit actually is.
On the 31st October 2019, the UK would immediately leave the EU with no negotiated deal having been agreed. This would also involve leaving the Single Market and the Customs Union, arrangements and agreements between EU member countries to facilitate trade on the basis that they eliminate or reduce checks and tariffs on traded goods.
The UK would also leave EU institutions such as the European Court of Justice and Europol, as well as dozens of bodies set up amongst member countries governing rules on everything from medicines to the sharing of intelligence on terrorism.
Importantly, the majority of British politicians in the House of Commons say they are against a no-deal Brexit, stating that it would almost certainly damage the economy in the short-term, and lead to a "hard border" between Northern Ireland, which forms part of the United Kingdom, and the Republic of Ireland, a member of the EU.
From an economist's perspective, confusingly, and perhaps not very helpfully, opinion as to what will happen to the UK's economy seems almost totally polarised. On 18th July 2019, the Office for Budget Responsibility (OBR) warned that:
"A no-deal Brexit would push the economy into recession."
While the very next day, Oxford Economics argued that:
"A no-deal Brexit could be bad, but never as bad as the OBR have predicted."
To add to the mix of opinions, Capital Economics stated that:
"A no-deal Brexit may or may not be bad, but we don't expect a full-blown recession."
To avoid more confusion, and in an attempt to avoid the sensationalism the press is wont to serve up depending on which newspaper you read, the general consensus could be inexpertly summed up as:
"The short-term will likely impact the UK, but in the long-term there are some exciting opportunities for growth."
So, is it possible to predict how this will affect Property Crowdfunding? Firstly, we'll need to look at the Property Market in general.
As safe as houses?
Despite some sources stating that the average UK house price has decreased, the data surrounding the UK property market does not make for an entirely gloomy set of statistics.
For example, whilst CITY A.M. released data stating that the average house price in the UK has slid from £217,663 to £216,096 between July 2019 and August 2019, in the same timeframe, the Gov.uk House Price Index says that there has been a rise of 1.2% in average house prices. It is for reasons like this that it is almost impossible, even for the "experts", to predict exactly what will happen.
Robert Gardner, Nationwide's chief economist states:
"While house price growth has remained fairly stable, there have been mixed signals from the property market in recent months."
It is clear to see that findings like this could be, and have been, used by both sides of the Brexit argument as to whether leaving the EU is a positive or a negative occurrence for the United Kingdom.
There is a continuing and contrasting rhetoric in the media that whilst house prices have increased and growth this year alone has been fairly stable, the actual growth rate is much slower than it has been previous to the uncertainty surrounding a no-deal Brexit. Mortgage approvals have been stable and new buyer enquiries have improved, but consumer confidence has slumped, and the average house price has supposedly decreased depending on which statistics you believe.
These conflicting pieces of data are pointed out and argued about, both exhaustively and exhaustingly, over mixing-decks on radio programmes, studio floors on television debates and across green leather benches in the House of Commons, and while the data is so ambiguous and contradictory, there has been no real conclusion, only uncertainty.
"Uncertainty" is clearly the key word here. While we cannot know how a no-deal Brexit will affect the property market, or property crowdfunding as a sector within that, people's uncertainty is stagnating any possibility of an upturn.
Robert Gardner continues saying that:
"In the near term, healthy labour market conditions and low borrowing costs will provide underlying support, though uncertainty is likely to continue to exert a drag on sentiment and activity."
Howard Archer, chief economic adviser to the EY Item Club, confirms that:
"With the economy struggling and the outlook currently highly uncertain, we suspect that house prices will remain soft despite the recent pick-up in housing market activity – which could well prove temporary."
With such a divisive topic, so shrouded in uncertainty, we can only speculate on different possible scenarios.
Focusing solely on a no-deal Brexit, wherein the UK and the EU cannot agree on any deal whatsoever, whatever your stance on the debate may be, it is difficult to deny that the short-term affects would be noticeable on the property market.
The devaluation of the Pound would probably result in a steep rise in consumer prices, in other words; rapid inflation. As investors are traditionally more fiscally conservative in periods of recession, the genuine question arises as to whether people would stop investing in property, seeing the risk as too great, albeit temporarily. The alternative would be to place capital in fixed savings accounts and Cash ISAs, despite the interest rates being so low.
Could immigration affect property crowdfunding?
Were the UK to adopt a tighter policy on immigration to these shores, another possible consequence would be how rapidly properties are built or developed. According to the Office for National Statistics, almost 10% of workers in the UK Construction Industry are from the 27 EU member countries. In London, the figures are more astonishing; 28% of all construction workers are from the 27 EU member countries.
As propertyroad.co.uk astutely recognises;
"Although it would be extreme to presume that these workers would disappear overnight, proposed restrictions on free movement and an immigration based on ‘high skills' would almost certainly cause recruitment issues."
This would almost certainly have a negative impact on timely project completions where houses are being built and renovated, as the scheduled completion date is of paramount importance in relation to the loan term negotiated when investors choose to invest in a loan opportunity.
Will property crowdfunding thrive as mortgage lenders tighten their purse-strings?
As with anything, there is evidently a flipside to the coin. If house prices do fall, there will be a surge of first-time buyers looking to seize the opportunity to get onto the property ladder. As a result, traditional mortgage lenders will have to re-evaluate their mortgage terms, and if the banks were to become stricter, these prospective buyers may turn to some of the specialist mortgage P2P lenders to get into the property market.
Who benefits from a no-deal Brexit?
Another group of people who could possibly benefit from this series of events culminating in the devaluation of the Pound, are property crowdfunding investors based overseas.
A weakened Pound means that foreign currency goes further in the UK markets than before, and if British property prices do indeed come down, new investment opportunities will be opened to overseas investors that were previously considered too expensive against a stronger Pound over the last two decades.
It should also be remembered that property is considered an illiquid asset, an asset that may be somewhat harder to convert into cash within a short space of time than a "liquid asset". Wherever you rest your head, whether it's your three-bedroom semi-detached in commuter-town suburbia, your end-of-row village cottage, your top-floor penthouse apartment in the centre of London, or your isolated farmstead thrust miles from civilisation, property, in general, is not as vulnerable to fluctuating markets and offers much more stability to investors.
Therefore, because of the fact that your investments are secured by an illiquid asset like property, unlike other assets, any short-term impact of a no-deal Brexit is likely to recover over the medium to long-term.
A waiting game till October
To conclude this article with hypotheses, predictions and speculations about what will happen should the UK leave the EU without a deal on October 31st this year would be to fall into the well-worn trap of countless other articles, all of which contribute to a conflicting noise of opinion, hyperbole and click-bait. As most of the sensationalism can be roundly ignored, this article will avoid any meaningful predictions to conclude.
Nonetheless, what we can safely assume is that the biggest impact of a potential no-deal Brexit up to the time of writing has been the uncertainty.
However the UK looks economically on 1st November, many people believe that by removing the uncertainty, people will be enabled to return to making economic decisions and investments and that it is specifically the uncertainty and not the economic downturn that has stagnated growth.
At CrowdLords, we recognise that underlying any short-term fluctuations in values and affordability is the significant imbalance between supply and demand. As a result, we expect the property market to return to its pre-Brexit growth rate fairly quickly, but to adhere to an aforementioned guarantee of abstaining from any prediction, in the words of economist John Kenneth Galbraith;
"The only function of economic forecasting is to make astrology look respectable."
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