street-1431207_640The impact of Brexit on the housing market combines two of the UK’s favourite topics of conversation. Only time will tell what impact, if any, there will actually be, but we think it’s still worth taking a look at how the UK’s withdrawal from the EU could impact the property market. All housing statistics are from the House of Commons Briefing Paper 04737, published on 29th March 2016.

Social housing

Social housing is often a highly desirable option for those on lower incomes, offering both affordability and security. Between April 2014 and March 2015, only 9% of social lettings in England were made to those born overseas (including non-EU citizens). As of Q1 2015, 18% of those born outside the UK were social-housing tenants, compared with 17% of those born within the UK. While the levels of participation are similar, the fact that the number of people born overseas is much smaller means that any potential exodus of EU migrants is likely to have a much more limited impact on the availability of social-housing stock.

The private rental market

In the first quarter of 2015, 39% of all those born overseas were renting privately. Almost three quarters of the migrants who had arrived in the UK within the 5 years prior to the study, were in the private rental sector. While this obviously implies that any potential mass departure of EU citizens would have a much greater effect on the private rental market than it would on social housing, the fact that EU migrants form a relatively small segment of the population as a whole would limit the impact of their absence.
It’s also worth noting that the term “the private rental market” covers everything from budget accommodation for low-income workers to luxury family homes and is spread across the UK. It’s therefore a reasonable assumption that the areas with the highest proportion of EU migrants will feel the most impact of any significant outflow. Precisely what this impact would be is still very much an open question. In theory, falling demand should lead to lower rents for tenants and therefore lower yields for landlords. In practice, if landlords are relying on rents to cover a BTL mortgage, then they may decide (or be forced) to play safe and sell their property. This would reduce the availability of rental property, thereby making it more likely that remaining landlords could charge higher rents and thereby obtain higher yields, but it would increase the supply of housing stock for sale, hence potentially lowering prices.

Private home ownership

At Q1 2015, 43% of UK residents born overseas owned their own home (as compared to 68% of the UK-born population). Given that buying a home is a substantially more complicated process than everyday shopping, it indicates a level of commitment to staying in one place for more than a short time. It also indicates that an individual either has the funds to buy a home without a mortgage or the necessary income (and security of income) to get a mortgage. Hence it is a feasible assumption that EU citizens who own their own homes could be in a reasonably strong position if they wished to stay but needed to apply for a visa/work permit. In an extreme case, however, where there was a mass departure of EU nationals (voluntarily or otherwise) then their previous homes would presumably be absorbed either into the supply of property for sale or into the supply of property for rent. According to the law of supply and demand, increased supply should lead to reduced prices, which could be good news for first-time buyers and those looking to move into larger properties, except that lower prices may not necessarily translate into increased affordability. Cash buyers may be able to grab bargains, but those dependent on mortgages may find lenders insisting on even more substantial deposits and on compelling evidence that the potential buyer’s situation is stable enough for them to make payments over the long term, even if interest rates go up.
The impact of Brexit on the housing market combines two of the UK’s favourite topics of conversation. Only time will tell what impact, if any, there will actually be, but we think it’s still worth taking a look at how the UK’s withdrawal from the EU could impact the property market. All housing statistics are from the House of Commons Briefing Paper 04737, published on 29th March 2016.

Social housing

Social housing is often a highly desirable option for those on lower incomes, offering both affordability and security. Between April 2014 and March 2015, only 9% of social lettings in England were made to those born overseas (including non-EU citizens). As of Q1 2015, 18% of those born outside the UK were social-housing tenants, compared with 17% of those born within the UK. While the levels of participation are similar, the fact that the number of people born overseas is much smaller means that any potential exodus of EU migrants is likely to have a much more limited impact on the availability of social-housing stock.

The private rental market

In the first quarter of 2015, 39% of all those born overseas were renting privately. Almost three quarters of the migrants who had arrived in the UK within the 5 years prior to the study, were in the private rental sector. While this obviously implies that any potential mass departure of EU citizens would have a much greater effect on the private rental market than it would on social housing, the fact that EU migrants form a relatively small segment of the population as a whole would limit the impact of their absence.
It’s also worth noting that the term “the private rental market” covers everything from budget accommodation for low-income workers to luxury family homes and is spread across the UK. It’s therefore a reasonable assumption that the areas with the highest proportion of EU migrants will feel the most impact of any significant outflow. Precisely what this impact would be is still very much an open question. In theory, falling demand should lead to lower rents for tenants and therefore lower yields for landlords. In practice, if landlords are relying on rents to cover a BTL mortgage, then they may decide (or be forced) to play safe and sell their property. This would reduce the availability of rental property, thereby making it more likely that remaining landlords could charge higher rents and thereby obtain higher yields, but it would increase the supply of housing stock for sale, hence potentially lowering prices.

Private home ownership

At Q1 2015, 43% of UK residents born overseas owned their own home (as compared to 68% of the UK-born population). Given that buying a home is a substantially more complicated process than everyday shopping, it indicates a level of commitment to staying in one place for more than a short time. It also indicates that an individual either has the funds to buy a home without a mortgage or the necessary income (and security of income) to get a mortgage. Hence it is a feasible assumption that EU citizens who own their own homes could be in a reasonably strong position if they wished to stay but needed to apply for a visa/work permit. In an extreme case, however, where there was a mass departure of EU nationals (voluntarily or otherwise) then their previous homes would presumably be absorbed either into the supply of property for sale or into the supply of property for rent. According to the law of supply and demand, increased supply should lead to reduced prices, which could be good news for first-time buyers and those looking to move into larger properties, except that lower prices may not necessarily translate into increased affordability. Cash buyers may be able to grab bargains, but those dependent on mortgages may find lenders insisting on even more substantial deposits and on compelling evidence that the potential buyer’s situation is stable enough for them to make payments over the long term, even if interest rates go up.