The early tremors being felt in the London property market post the Brexit referendum are making us all take notice. With an estimated 30 percent of Vin-X clients holding property investments, other than their home, from which they derive income and hope for strong capital growth, we thought a headline comparison of potential impacts from Brexit on property and wine might be instructive.
For some time now legislation has been slowly turning against certain types of landlords, particularly those who might be bundled together as Buy to Let landlords (B2L). Changes in mortgage interest relief are making their impact felt even before their staggered implementation begins next year.
The prospect of Brexit is already having an impact on the UK property market. This week three major UK property funds have suspended dealing amid serious liquidity issues as investors began to seek redemption of their invested funds. All told Standard Life, M&G and Aviva have frozen in excess of £9 billion of investors’ funds, while at the same time, major housebuilders have seen their share prices collapse. Bovis is down 37% since the 20th of June, Persimmon a similar number and Barratt homes down 41%.
We should be clear that the funds that have been suspended all deal in commercial property, which is notably less liquid than residential property, nevertheless the share prices show that there are clearly concerns about the residential property sector too. Both the National Association of Estate Agents and the Association of Residential Letting Agents have commented that Brexit could have a depressive effect on housing prices. In a legislative environment that has already made running B2L significantly more challenging and ever more reliant on capital appreciation, downward pressure on prices would certainly be unwelcome from most landlords.The poblm is particularly acute in London where property is now at a 12 average salary multiplier, and particularly vulnerable to changes in the B2L market and the interests of foreign buyers, many of whom may be put off by Brexit. If investors start worrying and liquidating their assets ahead of an expected fall in the market this can very quickly spiral into a full blown panic and pricing crash.
Against this background it is worth noting that the wine market has been weathering the storm in property, equity and currency markets admirably, the LIV-EX100 gaining 2.1% in June alone reaching its highest level in 2 years and the seventh consecutive month of gains. The broader LIV-EX 1000 was up 3.6% in June, reaching its highest level for 5 years.
It’s far too soon to be certain but it could be that, as Laith Khalaf, a senior analyst at Hargreaves Lansdown says “The dominoes are starting to fall in the U.K. commercial property market.” If this is indeed the outcome the impact could be significant, and those making defensive plans for their assets in the wake of Brexit should remember that in a panic exit doors are small, and prone to closing quickly.
If the worst comes, investors should not underestimate the value of holding an asset that is internationally tradable, and tradable to any currency you care to name, and that has outperformed property over a long period of time. In more ways than one, wine can help you through times of turmoil.
For more information on the fine wine market post Brexit contact us now on 0203 384 2262 and register for our free news service keeping you up to date with what’s happening in the market at www.vin-x.com