What The Future Holds For the Property Market if a Brexit Comes To Pass

After a majority win by his Conservative party earlier this year, Prime Minister David Cameron once again reiterated the government’s intention to hold an in/out referendum on the United Kingdom’s membership of the EU.

Proposals for a referendum, which is now planned for 2017, had been previously rejected by the PM. However, pressure from the British electorate has seemingly forced his hand and the decision over whether the UK stays in the European Union or not looks set to be put to the British public after all.

David Cameron

Photo Credit: Number 10 via Flickr

So, what does this mean for those of us with an interest in the UK property market? Let’s take a closer look.

Uncertainty is rarely a positive market driver

With the possible referendum on the UK’s membership of the EU still well over a year away, speculation is already rife as to what the end result may be. This is only going to get worse as we slowly draw closer to the vote being cast.

Uncertainty such as this is very rarely a good thing when it comes to investments, whether that be property markets or the stock exchange, so we may well see a correction in the run up to the vote regardless of the outcome.

question mark

Photo Credit: Benjamin Reay via Flickr

The media are certain to have a huge impact on proceedings and the resultant jitters may well have an effect on markets even before the first X is placed on a ballot paper.

Medium term worries

Many analysts are already voicing concerns over a possible Brexit and what leaving the EU would mean for UK markets over the short to medium term. A German report, made just prior to the last general election, speculated that a Brexit could result in the UK dropping as much as 14% of its GDP.

It is, however, worth remembering that the forecast for growth in Britain over this term is rated as considerably higher than the rest of Europe, so a counterbalance may be struck when taking in the markets as a whole.

london property investment

Photo Credit: Barnyz via Flickr

Nevertheless, a study conducted by PMA (Property Market Analysis) forecasted that London’s seemingly unstoppable commercial property market could be in for a rude awakening. PMA has stated that a Brexit could be a disaster for the UK economy, and the capital could be hardest hit with drops of 25 to 30% in office values.

Should this drop in value across London come to pass, the worry would then be focused on a contagion effect that could see property values in other parts of the UK drop as confidence in the British property market wanes.

Longer-term prospects

While the short to medium term outcomes are somewhat dividing the analysts and their predictions, longer-term prospects look slightly more optimistic. Many commentators are drawing on the fact that the UK will remain a global business hub whether it stays part of the EU or not.

european union flag

Photo Credit: European Parliament via Flickr

Although a Brexit could have serious implications across the early years, analysts and property pundits alike are cautiously confident regarding the way Britain will bounce back in the future. However, this rebound in fortunes is subject to as many variables as the initial downturn in market value, not least of which would be the measures taken directly after a yes vote to come out of the EU.

Remember, there is no crystal ball!

With all this in mind, it is vitally important to remember that speculation is just that – speculation. There are no hard and fast ways of accurately predicting what will happen should an exit actually become a reality, but being aware of the market and putting yourself in a position to pivot at the drop of a hat will do you and your portfolio no harm at all.

Feature image credit: Chris via Flickr

If you enjoyed this blog post then perhaps you would like to read “What The Future Holds For The UK Property Market If A ‘Grexit’ Comes To Pass“?