BREXIT: OPPORTUNITY OR DISASTER? – by James Siddall, Harvey Bowes Limited.
Given the media maelstrom surrounding Brexit, we at Harvey Bowes believe it to be an opportunity that should not be missed. We do not share the view of the media that the economy will grind to a halt following Brexit. Given the figures from a variety of sources detailed, our view is that Brexit will strengthen the UK economy.
The economic numbers here present an economy in good health a mere 7 years after the greatest financial crisis since the Great Depression. The UK grew 2% in 2015 and is set to grow by 3% in 2016 so an increase of 15 on Year on Year basis. This is against a strong background of consumer spending. Retail sales grew 4.3% on a YoY basis in 2016 with wages growing 2.3%. This combined with low interest rates (0.5%) and high Quantitative Easing policy employed by the Bank of England represents a strong economy. The strong economy can be further highlighted by a 4.9% unemployment rate. The key figure here is mortgage acceptances having increased by 4,000 p.a. from 67,000 in 2015 to 71,000 in 2016. It highlights that banks are still willing to lend on property and businesses giving a major boost to investors who have become concerned that banks will restrict lending as a result of Brexit. Given Harvey Bowes’ position as one of the top mortgage brokers with major banks, we have been informed that the banks are still willing to lend and have adopted the approach of ‘business as usual’. In light of these figures, it suggests that, despite the capital market volatility and slowdown in short term growth, the UK economy is in a stable position.
Against this background, we believe that property will continue to be the asymmetric return asset class to counterbalance the capital market volatility. Despite the Equity market surge where the FTSE100 has risen from 5,800 (Brexit vote) to 6,700 (22/07/2016) and Fixed Income markets suffering extreme volatility with yields being pushed down (10Y UK gilt yields 0.83%) to the detriment of prices, we believe that property will be the asset class that will provide stable capital gain in these times. Data from LendInvest suggests that the average rental yield for BTL property in the UK is 5% with Capital gains ranging from -3.7% to 13.8% in the North to London with the ROI complimenting these capital gains ranging from 1.2% to 18.9%. These figures suggest a healthy growing property market against a backdrop of strong economic figures. Furthermore, research undertaken by Cushman and Wakefield suggests that within the Commercial property market the UK market is forecast to grow significantly. Within the office rental area, the UK is set to grow by 3% in 2016. In addition, London was in the top quarter with 4.7% rental growth for offices in 2016. The capital value for the high street growth figure also backs up our view that Brexit is an opportunity for property investors. The high street capital value for London grew by 15% in Q1 2016. These forecasts highlight our view that Brexit will be an economic success for Britain.
Given our network with the major banks, we have followed their lead and maintained a business as usual approach. Indeed, we have seen an increase in mortgage applications from our current clients who are major property investors throughout the UK. Moreover, we have seen a 5% rise in applications from new clients further highlighting the position that we took after Brexit that both retail and professional investors will seek yield in property.