tower bridge and Brexit - how it affects interest rate

Time To Invest In London Property?

“No ifs, no buts and no maybes”, said Boris Johnson in his victory speech where he promised to “get Brexit done on time, by 31 January”.

The Conservative Party in UK has scored a landslide victory and achieved a majority in Parliament of 365 seats to take Britain out of the EU come January 2020.  In what is seen widely as a 2nd referendum on Brexit, the December 12 General Election has sent the clearest signal that the country embroiled in Brexit gridlock for three years is finally get its act together as we are about to begin a new year.

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While there are Brexit skeptics that doubt the future of UK out of the EU, most would agree that London is still very much a first world city that is not going to be replaced soon by any other city in the European continent.  Being the top two global financial centres on both sides of the Atlantic, with the common English language for business and rule of law, it has a lot to offer as a free country now – trade, capital, talent, jobs, technology, and of course a robust real estate market that is in perennial housing shortgage.    

I cannot predict if London will see a dip in housing demand (especially in the financial district of Canary Wharf financial) following exodus of some global financial institutions to another European city, or that of immigrants returning to EU.  But my bet is that London is going to continue to draw talents from all over Europe and elsewhere as it negotiates more free trade deals with other nations and possibly a big one with the US.  It will bounce back with growth in areas like digital economy, tech investment, healthcare and infrastructural spending.  From what I read, it does have to grapple with some short-term pain of productivity slowdown, restructuring of the economy, keeping United Kingdom together, and more importantly, successfully negotiating trade deals with other countries from a smaller base now.  The most important deal would be the one with EU which they have a year to put together.

Still with uncertainties on Brexit outcome removed, the Pound rebounded strongly by 2% against the dollar.  The stock market cheered. Is this the right time to enter the UK particularly London’s property market which has come down by the most?

Let’s take a look at the official data of UK HPI (House Price Index) introduced in 2016 by the HM Land Registry (quite aptly in the month of the Brexit vote 23 Jun 2016).  It’s the most reliable transacted data source which covers all residential properties purchased for market value in the UK.  In particular, we zoom into two particular boroughs that captures most of London Zone 1 which is focal point of most global investors – City of Westminster and the borough of Kensington and Chelsea.

london property prices in city of westminster
london property volume transactions in city of westminster
london property prices in borough kensington chelsea
london property volume transactions in borough of Kensington Chelsea

Note: Contains HM Land Registry data © Crown copyright and database right 2017.  This data is licensed under the Open Government Licence v3.0.

Despite all the noise we hear from various sources including those with an agenda to sell to us, how has the actual transacted prices move since the Brexit vote?

In both boroughs, you can see very similar patterns where average transacted prices dipped initially after the vote but picked up gradually in 2017 and peaked by early 2018 before resuming the downtrend and finally hitting a low in Sep this year 2019.  We are more interested in prices of flats or apartments (orange line) more so than landed.  In borough of City of Westminster, the average transacted price peaked in Feb 2018 at GBP1.056m and hit GBP844,839 in Sep 2019 – a drop of 20%!  In the borough of Kensington and Chelsea, the average prices peaked in Jan 2018 at GBP1.287m and hit a low of GBP1.072m in Sep 2019 – a drop of 17%. We also show the corresponding transaction volumes over the same period, which captures all property types as a whole.

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UK might still struggle a litte in 2020 as the uncertainties now turn to what kind of trade deal they will settle for with EU.  I read some ecnomists even predict a recession in UK by 2021.  But I am cautiously optimistic that real estate investors, who has sat out of the London market for most parts of 2018-2019 (as you can see the downtrend from the charts), would return especially after the election.  In fact, prices may have run a little I suspect.  The UK HPI index is a laggard as it is based on data for completed transactions which will only be known two months later unlike other house price indices released by Halifax (based on mortgage submissions) and Rightmove (tracking asking prices).  Hence, we only captured the data up to September 2019 at this point.  As it’s holiday seasons now, expect more buyers to return to London property market in January and I do expect prices to bottom out and start rising in 2020 which we will only see in the UK HPI by April of 2020. 

We made the call for well-travelled millennials aspiring to become global real estate investors to buy into London property market back in mid-2017.  Apparently, prices in Central London had 6 more months to run before it peaked out. We now made another call to enter the market at start of 2020 as asset prices in Zone 1 have fallen by 17-20% since the peak.  Remember, there is also much to be gained from the strength of the pound should Britain successfully negotiates a deal with the EU and averted a recession in 2020/21.  Still, it’s not for the faint-hearted when it comes to overseas property investment.  Caveat Emptor!  

We think there’s a good chance.  Remember property prices are known to shown great resilience even during downturns.  That’s what we see everywhere. In our own market here in Singapore where there’s a V-shaped recovery in property prices in Q12019 right after the Great Recession. As well as cities like Melbourne which property prices are bouncing back now with vengeance now after aggressive cuts on Australian property loan rates and after a similar 20% dip in prices since the peak.

If you are an Asian-based foreigner investor looking to buy into Central London in 2020, speaak to our team of experienced mortgage consultants here.  We are able to arrange financing from Singapore banks with a choice of SGD or Pounds, with rates from as low as 3.50% (in GBP) or 4% (in SGP).  GBP/SGD has also recovered (see chart from XE.com below) recently to 1.80-1.82 after the elections, from a low of 1.66 back in May 2019 – a superb appreciation of almost 10%.  This means that had you taken out a loan in SGD back then, your loan would have shrunk by 10% in GBP terms, on top of the appreciation in property price.   

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore.  We provide advisory for financing and remortgaging of properties in Singapore, Australia and UK through our network of lenders in Singapore, as well as partners in London, to bring you complete solutions for all residential and commercial real estate.

Note: Singapore lenders provide London property loan for residential purchases in London Zone 1-3 only.  Outside of Zone 3 and in other Cities like Manchester, Birmingham, Liverpool, we do work with our broker partner based in London but for a minimum purchase price of GBP500,000.

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