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HONG KONG

Brexit Opens Doors to UK Housing Market for Overseas Investors

Subdued housing market and drop in housing starts will trigger price growth when confidence returns


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Brexit will be the dominate influence on the UK housing market for the next two to three years, as the UK steers a course towards exiting the European Union in Q1 2019. The housing market will remain reasonably active during this time.

Low interest rates, the devalued pound, a supportive mortgage environment, and a slightly softer housing market present opportunities for overseas investors, particularly while Brexit and the 3% additional home stamp duty tax keep a lid on upwards price pressure. New housing starts are expected to wane in the short-term, and this housing supply shortage will lead to another wave of price growth in 2021. 

“The uncertainty and turbulence as we traverse the road towards Brexit will cause house builders to adopt a more cautious approach and turn the new supply tap down,” says Andrew Frost, JLL’s Lead Head of UK Residential.

Our research suggests that England’s housing starts will decline from a high of 184,000 units per annum in 2007 to 134,000 in 2018. The housebuilding slowdown will be more marked in London, where housing starts will fall to 16,000 p.a. this year and next, before rallying to reach 23,000 p.a. in 2021.

“Not only is London’s economy more vulnerable to Brexit, but the housing market is also more reliant on both domestic and international investors, and is hence more susceptible to buyer confidence,” explains Neil Chegwidden, a Director with JLL’s UK Residential Research team.

“But the short-term London supply prognosis implies that prices should bounce back when confidence returns. The work stream of new supply should then pick up, albeit slowly.”

"We could see a rebound in London housing markets in 2020, before the rest of the country follows​"

- Neil Chegwidden, Director, UK Residential Research

While UK real estate suffered a moment of uncertainty in the immediate aftermath of the EU Referendum, there was growing evidence that the negative impact was easing by the end of last year. Since then, investment activity has increased, cementing London's status as a preferred destination for both institutional and individual clients.

Most of the price declines in the wake of the stamp duty reforms in December 2014 have now washed through. House prices in Prime Central London are expected to remain flat this year and rise by 1% in 2018 – making it an ideal time to invest while prices are remain more moderate. 

"Assuming Brexit negotiations are not too detrimental, we could see a rebound in London housing markets in 2020, before the rest of the country follows," says Chegwidden.

By 2021, we anticipate the growth rate will climb to 5% on a year-on-year basis—matching growth nationwide. To take a longer view, we forecast Prime Central London house prices will rise 15.2% and rents by 11.4% between now and 2021, compared to nationwide growth of 13.1% and 17.6%, respectively. 

Other increasingly gentrified areas offer even higher potential returns. 

East London is emerging as one of the UK’s most important growth drivers, contributing GBP 5 billion per year to public finances—more than the whole of the east of England. The brightest star, Hackney—located on the fringe of the City and known for its artistic heritage—has been transformed by the tremendous expansion of the UK’s digital sector. 

Hackney is now home to 45,000 people in this line of work and high demand for housing in the borough has pushed average house prices up 111% over the past decade, outperforming the average growth across London.

But Hackney isn’t the only new hotspot attracting UK and international investors’ attention. Manchester city centre is our number one UK market for capital value growth prospects over the next five years, and is expected to be among the best performers for rental growth as well.

House prices and rents skyrocketed by about 15% and 11%, respectively, in 2016. We anticipate sales prices will rise by 7% in 2017 and rents by 3% year on year.

“There will remain a dearth of new stock finishing over the next couple of years and that which does complete is expected to be heavily weighted towards the private rental market, creating significant price growth pressure for the open sale market,” says Louise Emmott, a Director  with JLL Residential in Manchester.​ 

The city’s rapid population growth, buoyant local economy, and the fact that scores of international investors and UK institutions jostling for position on key large-scale land sites, all contributed to 15% average capital value growth in 2016.

For international residential sales listings, please visit our JLL Property website

For more information about JLL's International Residential Property Services, please contact Mandy Wong.