It has been an extra ordinary year in politics, with first a vote here in the UK to leave the EU and then the election of Donald Trump to be the next US president. I have discussed the effects of Brexit in an earlier article (see http://house-hut.com/will-brexit-affect-the-value-of-my-home if you want to read it again). The election of Apprentice US star and property developer Donald Trump may actually have a greater effect on our housing market here in the South West than Brexit – and here’s why.
The UK housing market is dominated by London where house prices are traditionally 2-3 times higher than in the South West and even more in central London. It has long been favoured as an investment location for overseas investors who perceive London as a safe haven for their cash with a good track record of high capital return. This is important for two reasons, firstly this puts upward pressure on the London housing market which filters through to the rest of the UK property market and secondly it encourages native Londoners to re-locate. The South West is a particularly popular destination for people looking to re locate with its good transport links, beautiful cities and countryside and the excellent lifestyle it can offer.
What has this all got to do with the US presidential election results? Since the results were announced we have seen significant numbers of high wealth US individuals looking to re-locate to Canada, New Zealand – and yes – London. The fall in pound post Brexit is a further bonus meaning London house prices are 10% cheaper for foreign investors than a year ago (they have risen 13% for domestic buyers). This is compounded by non US nationals and companies also looking to relocate to London instead of New York or other parts of the US. Foreign buyers, particularly from the Middle East and of Muslim faith, may enter the London market, too, as they decide not to buy property in the US due to his remarks about banning Muslims from entering the country
Another factor to consider is the effect of the election result on the dollar/pound exchange rate. The pound took a hammering following Brexit and the resultant weakened exchange rate will lead to higher import costs, most noticeably oil, which will lead to some inflation. The result on November 8th has led to a fall in the dollar in all markets including against the pound which may lessen the effects of inflation, but is unlikely to remove it completely. Inflation will cause pressure on the bank of England to increase interest rates but this perhaps seems a little less likely due to the fall in dollar prices. It seems likely that cheap mortgages are here to stay for the time being at least.
On a broader front the health of our economy is very important to the housing market. Redundancies, un employment and stagnant wage rises all have a negative effect on the housing market. Uncertainty leads to people postponing major expenses such as moving home. A Trump presidency certainly causes uncertainty and this may lead to a slowing down in the UK property market as investors wait to see the outcome before making further acquisitions. Other commentators however think his pro British stance may be very good for the UK. The US is the biggest single export market for UK goods – a position which is likely to increase if we get a favourable trade deal which seems likely. That could provide a boost to the economy further fuelling house demand.
The result – many are predicting increase activity in the UK housing market in 2018 with rising prices which is good news for those who own property. One note of caution however – Mr Trump said many thing during the election campaign. Nobody knows at this stage just how many of those promises he intends to carry out. We live in interesting times.