Is the London Rental Market about to crack? The final outcome

 

HAVE EUROPEANS STOPPED COMING TO THE UK IN THE SAME NUMBERS AS PRE=BREXIT AND IF SO COULD THIS TRIGGER A COLLAPSE IN THE LONDON MARKET?

 

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We are asking whether or not Europeans may not be coming to the UK in the same numbers as pre Brexit. I cannot find any current statistics to confirm what is happening but based on anecdotal evidence a story is emerging that is backed up by my own experience of renting in London and which to me makes sense

 

In the last 8 years or so Europeans have flooded into the UK   Not just from Eastern Europe but also from the rest of Europe. The type of person coming will be young and ambitious and wanting to make a new life in the best country in Europe for young people to thrive (if you think that is wrong spend some time in Countries like Spain with mass youth unemployment and static economies offering few opportunities to get on not least because of very old fashioned ideas about Buggin’s Turn and only hiring local staff)

 

They come here knowing there will be opportunities but also knowing it will take time to establish themselves. But if they can then they have a chance to make a better life.

 

These people are prime candidates to use the Private Rental Sector and so they have been renting in large numbers.

 

Very different from the vast majority of the two million Brits who have gone to Europe who will tend to be older wealthier people looking to retire (and buying rather than renting when they go across) In some places they have fuelled a frenzied building boom. In areas, such as the Costa Del Sol the amount of properties purchased was allowed to run out of control and left an absurd oversupply which any sensible Country would have avoided. But Brits have done very little for the PRS market in those countries

 

However, making a new life in the UK only works for these Europeans if they know that they can take the time needed to establish themselves. Up to Brexit that was not an issue They had the right to live here for ever if they wanted

 

Once they believe there is only a window of two years before they are all asked to leave then despite all the opportunities here it starts to make less sense to go in the first place. Yes, the opportunities are great but to really take advantage of them you need more than two years. And is it worth it if you make a life for yourself and then have to leave? There may be promises that this will not happen (although as yet there have not been) but even those may not be reliable. So, a significant number are saying it is not worth it.

 

Now again I do not have the numbers to confirm this only anecdotal evidence (and if anyone has the figures please do let us have them) but I can see from a common-sense point of view this is likely to be the case

 

One example of anecdotal evidence is an issue of The Bottom Line on Radio 4 where a person from PWC the Accountants said they had noticeably fewer applications for training contracts from Europeans for exactly this reason.

 

And it only needs a relatively small decline in numbers to have an impact in a market in a process of continual expansion in expectation of an ever growing rise in demand. That I believe is what happened to me and is going to be happening increasingly causing rents to move down.

 

At some point the overall effect of all of this combined with the planned tax rises and the large numbers of properties coming on stream to meet expected rising demand could mean a halt to growth in the London market for the first time in 20 years.

 

And if growth does stop then suddenly the whole London Market makes no sense and panic could ensue.

 

Because we have had 20 years of virtually continuous growth since 1996. 20 years in which properties in areas like Leyton have gone from £120,000 to £900,000 and in which almost no one who purchased a property could fail to make a profit.

 

So, you have a whole generation who simply cannot conceive of prices in London stabilising letting alone going down. Yields already make no sense. So, if this happens at a time when rent fall then you really do have a scenario where panic could ensue.

 

And maybe that will not be all bad because suddenly homes will become more affordable for first time buyers.

 

But for those left holding the parcel when the game ends it might not be such good news

 

Let me be clear I could be wrong. This is only a point of view and no one reading this should take any actions based on what i have said alone. You need to think it through and take your own advice and then decide what to do.

 

Who knows may be 5 years’ time we will look back on this and see London prices have continued to soar and the £900,000 property in Leyton is worth £1.2 million, that we did a deal with Europe that allowed Europeans to continue to come in the same numbers as before and rents have continued to rise.

 

However common sense says you need to consider all possibilities and it has to at least be    possible that my scenario will play out. That Europeans will stop coming or not be allowed to come in the same numbers. That rents will fall. That the combination of falling rents and increased costs of operating as a Buy to Let Landlord will mean fewer people want to invest so there is less demand and so price growth stops or even falls slightly and then those who have properties with very low yields panic and want to get out of a market that makes no sense without substantial growth. That is before one considers what might happen if we get inflation due to Brexit and interest rates have to get up.

 

So I make no apologies for putting this out there to give people a chance to consider all their options and to take this into account when deciding how to plan for their own future.

 

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