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Brexit – potential impact on the rental market

 

With Great Britain coming to terms with the outcome of the EU Referendum vote, with a majority voting for Brexit, it is time to work out how the vote will impact on certain markets. The rental market is one of the biggest and most important markets in the UK and while the full impact of the vote is unclear, it is obvious that there will be an impact of Brexit on the rental market.

In a study undertaken by the Migration Observatory, it was found that foreign based nationals are three times more likely to rent property than people who were born in Britain. If this is the case and Brexit eventually leads to fewer foreign-born nationals coming to the United Kingdom, it is inevitable that this will reduce the demand for rental property in Great Britain. If you follow this argument to its most logical conclusion, a fall in demand leads to an eventual fall in the price of renting property in the United Kingdom.

Will the student market change and if so, will this impact on the rental market?

Another factor that may lead to a fall in the demand for rented property in the UK is whether EU students will still be able to attend classes and courses in the UK. Figures suggest that there are 125,000 EU students studying in the UK, and if this figure is removed or greatly impacted on, many major cities in the country will suffer a fall in the demand for rental accommodation. This means that cities like Nottingham, Manchester, Birmingham and Glasgow, all recognised as having a sizable student population, could see rental prices fall because there is a big drop in the level of demand.

Of course, the nature of the economy means that a positive impact on one part of the market may well be balanced by a negative impact in another area. While there is still great uncertainty about the true impact on Brexit on the rental and property market, there are some outcomes that could impact on the supply of property for the rental market.

With the £ being weaker against foreign currencies, the cost of building materials may rise, and this could lead to a rise in housing prices or it could lead some developers to decide against investing in new property.

Increased mortgage payments will impact on the rental market

There are also concerns that the changing economic conditions could lead to increased mortgage payments for landlords and property investors. If a landlord or investor reviews their expected rental yield and find that the new payments lessen their financial return, they may decide to sell their property or decide against investing in new rental opportunities.

This alone would lead to a fall in the supply of rental options, which would eventually lead to a rise in the price of rented accommodation but if landlords are being impacted on by increased mortgage payments, many people and families may also be affected. This could see some current property owners downsizing and looking to enter the market or it could price potential buyers out of the market. Uncertain economic conditions could lead to a fall in the supply of rented property and a rise in the demand for rental accommodation, a situation that would lead to a rise in the rental prices.

If the outcome of the UK’s exit from the European Union eventually pans out in the way that many experts believe, there will be many different factors impacting on the rental market. It may be that there will be a reduction in the volume of people who are looking to rent property, which should lead to a fall in the level of rental prices. However, other factors may impact on the economy and if that leads to a rise in mortgage levels, the supply of property and eventual increase in demand for rental property, could see rental prices increasing.

When the future of the UK becomes clearer, it will be easier to predict what will happen in the wake of Brexit but for now, it is important to be aware that the market could move and evolve in many ways.

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