Bank of England Governor Mark Carney said that a decline in UK real estate prices could be ahead by 35% if no-deal brexit becomes a reality, and the prospects for buy-to-let investors could be precarious.
Of course, an agreement can be signed between the UK and the EU, which could lead to an improvement in the performance of the UK economy. However, the reality is that the UK real estate market may have difficulty generating the growth that has occurred over the last 20 years. Rising interest rates, affordability issues and political risks could lead to some disappointment in house price growth.
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Assuming that a Brexit deal is signed, interest rates should rise rapidly in the medium term. A Brexit deal could give consumers and businesses more confidence in the economic outlook of the UK, which could lead to stronger economic performance. As the rest of the world economy is currently experiencing strong growth, the Bank of England could try to reduce inflationary pressures in the medium term.
The availability and affordability of mortgages may therefore decrease. A higher interest rate would also make the repayment of mortgage loans less affordable, which could lead to slower house price growth.
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Of course, no asset has risen in the long run. After two decades of growth, UK house prices could be in a difficult phase as the market has been strengthened in recent years by favorable government policies. The help-to-buy system has allowed many first-time buyers to own their first real estate without large deposits, while stamp duty relief can also have a positive impact on real estate prices.
Given the precarious political outlook for Great Britain, a political change of residence would not be a big surprise. This is particularly the case as housing affordability becomes a major political issue – especially among younger voters who are having difficulty accessing real estate managers. Therefore, the price increases that buy-to-let investors are used to may be less impressive in the coming years.
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While supply of new housing is lacking, demand for housing may come under pressure due to rising interest rates and changes in government policies. Investing in a wider range of assets instead of real estate could therefore be a wise decision, as the risk-return ratio of individual purchases may currently be less attractive than in previous years. With the entry into force of tax changes, stocks may offer a simpler and more profitable perspective.
Given that the FTSE 100 has a dividend yield in excess of 4% and has recently experienced a pullback, it can offer good value for the long term. Although this may be more volatile than house prices, it can ultimately lead to higher yields in the long term.
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