Would a no-deal Brexit be good or bad for the residential property market?

 

Would a no-deal Brexit be good or bad for the residential property market?

There is much talk today, in the press, about the consequences of a ‘no deal’ on Brexit, even Dr. Liam Fox has put it down to a 60/40 chance.

The Governor of the Bank of England (BOE), Mr. Carney, has increased Interest Rates, probably because he believes that, on balance, the Brexit deal will happen and therefore, the control of inflation is more important today, than anything else, when the ‘sluice gates open’ on public sector wage increases and their knock on effect on the private sector.

On the other hand, it does however, also give him the opportunity to reduce the UK Interest Rate in the future, if the economy flounders, since if he left it at the emergency rate of 0.5%, there wouldn’t be much flexibility left to have any meaningful effect.

‘No Deal Brexit’

If there were a ‘no deal’ Brexit (which I believe is a highly unlikely scenario), the Pound would certainly sink further, to perhaps parity with the Euro and Dollar, rendering inward investment even cheaper for international purchasers of UK property. For instance, we have sold £371million worth of residential property in the last 18 months and 50% of it is directly associated with our devalued currency. Manufacturers/exporters, would have a ‘field day’ with the low Pound and tourism would go berserk. On the other hand, Foreign holidays, in America and Europe, would unfortunately become more expensive, whereas the English Riviera would become perfectly affordable and where is the harm in this? In any event, this is a good way to support this country when it needs help the most. Yes, a ‘no deal’ would have its complications, but we trade with WTO Rules, with the rest of the World, which makes up the majority of our exports and we appear to do reasonably well as a result.

I have said, ad nauseam, that market sentiments in the Residential Property Sector up to £5million in the UK, are not driven by the ebb and flow of the Brexit negotiations. The uncertainty surrounding these matters, do not affect the average ‘Joe’ on the street, other than its possible effect on Mortgage Interest Rates. For example, if Mr. Carney tried to protect the rout on the Pound after a ‘no Brexit deal’ and any inflation that may take place as a result, Interest Rates would have to rise and therefore, would have an upward pressure on the Mortgage Rate which would certainly effect sentiments.

Yes, we may have lost a few international bankers due to the uncertainty of the Financial Services Sector (i.e. Goldman Sachs and JP Morgan), but the changes to Non Dom fiscal rules are the real culprit here, particularly within the American banking fraternity who, hitherto, paid full worldwide tax, but now who cannot afford to remain in the UK any longer, under the existing draconian residency arrangements imposed by the former Chancellor Osborne. As the UK is foolish enough to lose these wealth creators to our rival European partners, Portugal, France and Italy, in response, are trying to lure them by setting up an attractive world-wide tax moratorium, which they have all hurriedly now designed for the purpose. How judicious!

Sadly, Brexit for the press, is the gift that keeps giving and unfortunately, whatever is going wrong with the Economy, or the sentiments in the UK, is presently blamed on this, when in truth, it is simply not the case.

Stamp Duty distorts property market

The Stamp Duty changes have had the most distorting effect on the Residential Property Market in the UK and as such, buyers in excess of £1million are staring at an unaffordable and un-mortgageable wall of costs and some are choosing not to embark on the journey at all. You can’t blame them!

So, with all the ‘hoo ha’ surrounding Brexit, it either has a zero effect on sentiments or a positive one, but certainly not a negative one.

Lest we forget, Stamp Duty is perfectly payable and perfectly avoidable, if you don’t move or invest. However, the damaging effect of an illiquid residential property market on wider parts of the economy i.e. retail spending and subsequently UK Growth, is very germane and tangible.

Lets remember that the UK Economy, after the crash of 2008, had the positive effects of Quantitative Easing, cheap money and a buoyant residential property market and all these stimulants have now evaporated. Is it any wonder why we are growing at a lower pace and this is nothing to do with Brexit.

‘Short time pain for long term gain’

Why are the ‘Remainers’ so reluctant to concede that Brexit is a generational decision and therefore, it is only the medium to long term interests of the UK that matter. If we become so obsessional about our reluctance to take any ‘short time pain for long term gain’, then it is the equivalent of people never going on holiday, never moving house, office or in fact, never becoming an Edmund Hillary or Neil Armstrong conquering Everest or exploring the Moon.

Isn’t it odd that the insufferable Europhile commentators i.e. Tony Blair and Ken Clarke to name but a few, who tried to persuade us, at the time, that joining the Euro was the best thing for the future of this country, are now trying to convince us to have a second Referendum and stay within the Customs Union and the Single Market, with all the perils associated with these.

If we listened to them at the time, the UK Economy would be at least 10% smaller than it is today and hamstrung by the ‘one size fits all’ Interest Rates across Europe. Didn’t we suffer enough trying to maintain the pound’s position in the erm, which was the precursor to the Euro?

Since Germany has a ‘perfect economy’ but does not have the ability to control Interest Rates for themselves, they are therefore vulnerable to any inflationary effects on their economy. Rather than suffer this themselves, they would prefer instead for southern Europe to be burdened with the scourge of 50% youth unemployment, borderline despression and certainly subdued growth for the rest of Europe, rather than endorse Quantitative Easing after the 2008 Crash, which they should have done. On the other hand, this mechanism represented the ‘saviour’ of the UK and USA economies at the time.

We can thank the head of the Bundesbank, Helmut Schlesinger, in 1992, for his unhelpful comments about the unsustainable value of sterling in the erm and one hour later, it resulted in the ignominious devaluation in the pound which, perversly, turned out to be the best thing that has ever happened to the British economy.

If this is what you call European solidarity, aren’t you pleased now that the UK elecorate, on balance, decided to vote for Brexit?

Four generations of German people will still be paying in the future

When West Germany absorbed East Germany, after the end of the Cold War, by agreeing parity with the two diverse currencies, they paid a price that four generations of German people, will still be paying in the distant future. The ‘perfect economy’ of West Germany was disrupted for ten years, at the time, whilst they reconstructed East Germany, which by comparison, was a vestigial ruin from the ‘dark days’ of the Cold War… did the populace complain at the time? No, they didn’t, they just got on with the job and saw it as an investment in the destiny and future of their country.

This is a very sobering lesson for us all to learn, as we embark on the new post Brexit chapter of the UK success story.

“If Britain must choose between Europe and the open sea, she must always choose the open sea.” Winston Churchill