Should You Not Buy Property for Fear of the EU Referendum?

eMoov's research indicates that some 55% of Britons believe a positive vote to leave the EU will have some impact on housing prices. Most feel that the largest impact will be felt in London. Approximately 52% believe London prices will rise while 23% believe they will fall. The disparity between the two groups is further fuelled by commentary that attempts to link housing price increases over the last several decades to membership in the EU.

While it may be true that prices have gone up some 2,000% since Britain joined the EEC in 1973, membership in Europe has hardly been the main driving force behind it. To assume otherwise is to place far too much emphasis on the implications of EU membership. The truth is, there are more important factors that go into determining housing prices than whether or not the UK remains a member of Europe.

Supply, Demand, and Public Perception

If EU membership is not as big a factor as it is made out to be, what actually does drive the housing market? Three things: supply, demand, and public perception. Until such time as all property in the UK is owned by the government, those three factors will continue to be the main driving forces.

Supply and demand are major influences because these determine who will buy a property and who will not. It's a simple matter of maths. If a seller lists a property for £100,000 only to discover five buyers want that property, he/she suddenly finds him/herself in a position of strength. He/she will be able to pit those buyers against one another in a competition to see who will offer the best price. In the end, only one buyer will prevail while the seller will likely get more than the asking price.

The opposite is also true. If that same seller puts his/her house on the market at a time when there are five houses for every one buyer, he/she must compete with the other sellers to attract that buyer. The best way to compete is to drop the asking price.

What role does public perception play here? It is the fuel of the supply and demand engine. Using the previously discussed research from eMoov, consider what might happen with London property as we get closer to the referendum. Assuming polling is leaning strongly in favour of a British exit, how do you think the 53% who believe housing prices will rise will react? They will be less likely to sell in anticipation of being able to get more money after the referendum. That will limit the current supply and effectively drive up prices. If the polling trends in the opposite direction, the majority would be more willing to sell in order to get what they can before the bottom falls out. Prices will go down as a result.

Buy Property, Make Money

The point is this: you should not be dissuaded from buying property based on the potential fallout from the EU referendum – especially if you are a buy-to-let investor. Rather, you should buy property with the knowledge that it historically does well over long periods regardless of external influences. You will make money as a landlord whether or not we stay part of Europe. In simple terms, renters will still need a place to live whether we stay or we go.

Sources:

Property Wire – http://www.propertywire.com/news/europe/uk-proeprty-prices-vote-2015110411164.html

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Nick Hopkinson

by Nick Hopkinson - Property Investment commentator and Fruitful founding director.

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