Article 50 And How It Might Affect The London Property Market?
Today is a day that will go down in the history books as Prime Minister Theresa May has triggered Article 50 meaning the president of the European council has been notified of the UK’s withdrawal from the EU – the Brexit process has officially begun!
So what does Article 50 really means and how Article 50 will affect the London property market?
Article 50? What is it? Article 50 of the Lisbon treaty sets out provisions for how a country can leave the European Union. The short 264 word document doesn’t provide much detail on how the withdrawal process actually works, but it explains that the country should “notify the European Council” and then set out “arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.” In other words, now PM May has invoked Article 50 and the European Council have been notified with a hand-delivered letter, we in Britain have two years to negotiate the terms of our exit. Read the full letter here
When will the UK officially leave the EU? If this process is followed, Britain will have officially left the EU by April 2019. However, Chancellor Phillip Hammond has suggested it could take up to six years for the UK to finish negotiating exit terms. Britain’s terms then have to be agreed by 27 national parliaments – so it’s certainly no mean feat.
Brexit negotiations and how they will work? No one is entirely sure, no other country has ever left the EU before via Article 50. Team UK will most likely be led by Theresa May, with the Department for Exiting the European Union also taking a leading role. Secretary David Davis is the minister going into battle to secure Britain’s best exit deal possible, likely assisted by Foreign Secretary Boris Johnson, and they will go head-to-head with Frenchman and chief negotiator Michel Barnier. Davis and Barnier used to be rival Europe ministers with contrasting visions of the EU in the 1990s, so they have come up against each other before. Barnier has already warned of a tough stance he will take in negotiations, stating there will no “cherry picking” by the UK of the benefits of EU membership.
How will Article 50 affect London’s property market? It could be that possible effects of Article 50 will not affect the property market directly from today. In one sense it removes the uncertainty surrounding when Britain’s withdrawal process from the EU will start, but in another it will create economic uncertainty until the deal has been stuck and therefore what Brexit actually means for the country and London.
Brexit will no doubt mean a turbulent two years for the property market as we begin to hear what negotiations and proposed deals are being put forward for UK’s exit of Europe and the single market. Forecasts suggest there will be a continued slowdown or lethargic London market, sales volumes wise. As was reported toward the end of last year, transaction volumes across London are already more than half of what they were before the 2008 crash.
London has a significant part to play in businesses who trade and operate across Europe and the world. If Brexit negotiations go well this could cause further price growth as the economy grows and we see the nation’s confidence lifted, but equally, if a good deal isn’t reached then the international companies who operate here or look to relocate here might change their minds, reducing the number of residents who live in the capital and further reducing the transaction levels, which in turn could ultimately lead to price decreases. It’s therefore important property decisions are based on personal situation rather than gambling on how the market will play out.
For now, logically uncertainty will be experienced but as the negotiations progress, housing market stability will be regained as people realise the effects of Brexit are not catastrophic so they’ll go on with living their lives. Of course it is hoped transaction levels will increase, which are currently dangerously low and affecting price growth across the capital. Today’s events are likely to have a much more profound affect on foreign investment however, with the weakening pound expected to fuel demand from overseas buyers and investors. Many are also speculating that today’s events will mean that the Bank of England will be hesitant to increase their interest rates, in spite of the recent inflation increase. This will it will remain cheaper than ever to borrow and get on to the property ladder.