How serious is Brexit for London property prices?

The answer to this is that nobody knows. At the moment, actual Brexit has not been priced in. While there has been price drops and falls in sales numbers due to the uncertainty of Brexit, there is a massive difference between the uncertainty of Brexit (what we have now) and the certainty of Brexit (what we will have when we know what the actual outcome is of Brexit negotiations).

Two scenarios: The Low road and the High road

The Low road

There are some that say there will be no access to the single market, that the EU will seek to punish the UK so as to prevent other countries defecting. Why would the EU do that? After all, not trading at all with the UK will hurt Europe. This is true but a sweetheart deal for the UK would almost certainly result in a break-up of the EU as other countries would want to cherry pick too. Some argue there is no win/win here, that the UK and Europe will be worse off and that punishing the UK is the lesser of two evils.

If this does happen, what does “going it alone” entail? The UK does not have a lot of bargaining power as a standalone country so the idea of being a global trader sounds good in theory but in reality, the UK’s negotiating power compared to the EU when negotiating trade agreements is much weaker, so expect weaker terms that what the UK has as part of the EU.

What does it mean for London property prices?  Put bluntly, it means complete decimation. We would not be surprised to see a 40% drop in prices across London and then very little recovery over the next 10 – 20 years. Why? Because house prices are directly linked to the economy and if the UK is punished by the EU and it can’t negotiate fantastic trade deals beyond the EU then it’s economy will only be a fraction of what it is now. This means property prices will only be a fraction of what they are now.

The High Road

There are others that say the EU can’t afford to lose the UK as a trading partner because it is too dependent on this trade to cut the UK off. If this is true then the UK should get a deal that is not that much different to what it has now.

Brexit means the UK can cherry pick when it comes to immigration. That is pretty much what the US does. They have what is called the “Genius Visa”. This simply means the brightest and the best in the world are welcome in the US. These people come in, start companies and make billions. If you are not super bright and amazing, you don’t get in. The UK could adopt a similar approach.

What does this mean for London property prices? We think they would recover and continue to rise but the rise will be tempered by the decrease in net migration. At the moment Brexit is uncertain and as such the potential for the Low Road is priced in (this accounts for drops in sales and prices since the referendum) but once the Low road is no longer on the table then that risk is removed and the prices will recover quickly.

The big question is: which way will Brexit go? At the moment, the market is leaning toward the Low road (hence the drop in prices). If it is in fact, the Low road, buckle up, we ain’t seen nothing yet.

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