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Why a no-deal Brexit could send London's prime property market soaring again

Terrace houses around Chelsea in London, one of the prime property hotspots in the capital. Photo: Getty

Parliament has blocked Prime Minister Boris Johnson from a no-deal Brexit, for now.

But a possible general election and leaving the European Union, with or without a deal, on Halloween, still hangs in the balance. And with both sides unwilling to move on the issue of the Irish backstop, no deal is looking likelier than ever.

While no-deal Brexit threatens to derail the economy, there’s one sector that might do well out of it—London’s prime property markets.

Sterling has tumbled sharply since the referendum against the US dollar with some forecasters anticipating parity between the two currencies, a long way from the heady pre-financial crisis days when £1 bought $2.

The crisis is an interesting precedent. When the financial crisis hit, sterling and property prices plummeted, which enticed overseas dollar buyers into the prime London markets where their money went much further than before—sending house prices soaring for several years.

Central London was and is a status market where the world’s rich and famous want to own property. The city’s culture, finance economy, luxury shops, private schools, universities are all supremely attractive to wealthy people.

Though a messy Brexit may take the shine off, Britain and in particular central London’s attractiveness to international buyers will not dissipate overnight.

In fact, given that prime London property prices peaked in recent years, the collapse of sterling might offer a discount buyers have been waiting for—renewing the market after a dull period.

Marcus Dixon, head of research at property data firm LonRes, told Yahoo Finance UK that while Brexit has dampened demand for prime London homes in recent years, some clarity—even if it means no deal—could be positive for a market plagued by uncertainty.

He said that prime central London property prices are down 15% from their peak in 2014. But those buying with dollars benefit from a 45% discount on the peak price because of sterling’s weakness. A no-deal Brexit will likely hurt sterling further, increasing that discount.

“Our subscribers are reporting an increase in enquiries from dollar buyers, who, when the time is right, could look to invest in central London real estate,” Dixon told Yahoo Finance UK.

Fulham Reach luxury apartments, London. Photo: Anthony Weller/View Pictures/Universal Images Group via Getty

“However, domestic buyers still make up the majority of central London buyers, therefore it is important that these potential purchasers have both the means and inclination to transact.”

He also cautioned that there is a high cost to purchase, particularly because of the punitive stamp duty rates on the most expensive and second homes, “meaning those who do purchase must take a medium to long term view.”

“But, there are signs that activity is starting to improve, albeit off a low base,” Dixon continued. “So far this year the number of properties sold in prime central London, in the midst of Brexit uncertainty, has increased.

“The number of properties sold between June and August this year rose 7.6% in prime central London compared with the same period a year ago. There is also less stock on the market, with 12% fewer properties listed now compared with the same point a year ago.

“This means that if the number of serious buyers increases demand could outstrip supply.”

With prime central London property prices falling for several years and a seriously weakened sterling, a no-deal Brexit may, paradoxically, boost the market once again.