Tony Butterworth is a Senior UK Immigration Consultant with 23 years’ experience in UK immigration, seven of which were spent in the Home Office as Executive Officer. He works with large multinational companies and individuals of all nationalities, such as skilled migrants, investors and high net worth individuals who are seeking work authorisation for economic based activities. Here he offers his insights into the Brexit implications on immigration in the UK, recent regulatory developments in the sector and what it means to be an immigration practitioner.
As a thought leader in the segment, what would Brexit mean for immigration in the UK? Do you believe that leaving the EU will actually reduce immigration in the country?
Whilst the true impact of Brexit on UK immigration remains to be seen, it will inevitably lead to changes to the current EEA policy. Following the Prime Minister’s speech earlier this month, we know now that the United Kingdom intend to impose restrictions on nationals of EU states wishing to enter the United Kingdom. The question remains as to when and how this will take form.
Currently, there is no legal requirement for EEA nationals or even their family members to register their residence with the Home Office. There could be significant numbers of these migrants living in the United Kingdom with no Home Office record. This issue has been addressed in the recent introduction of The Immigration (European Economic Area) Regulations 2016. What is evident is that the introduction of stricter registration requirements on EEA nationals and their family members is almost a certainty. Another point to bear in mind is that removing free movement of EEA nationals into the United Kingdom does not necessarily mean a reduction of workers entering the United Kingdom. Employers will still be selective as skills and experience are required to fill posts. If these cannot be met by UK workers, they will be forced to continue to look for talent further afield. It is likely that any changes to immigration requirements, as a result of Brexit, will not deter employers from recruiting the best and most skilled workers.
What would you say was the biggest regulatory development to affect the UK Immigration sector over the last 12 months?
The UK Immigration Act 2016, came into force in May 2016. This Act is significant because not only did it introduce changes to Immigration law and policy, but it also covers housing, social welfare and employment. Significant changes include the right to freeze bank accounts and seize driving licences of migrants who are here unlawfully, imposing criminal sanctions on employers found to be recruiting illegal workers, and the right to remove all migrants from the United Kingdom pending their appeal against the decision to remove.
What do you anticipate for the sector in 2017? Are there any legislative changes on the horizon?
Following changes to the Tier 2 category which were implemented in November 2016, further changes are due to be applied in April 2017. This includes the introduction of the ‘Immigration Skills Charge’ under which employers will be required to pay a fee of £1,000 per year for each sponsored migrant, requiring Tier 2 (ICT) Migrants to pay the Immigration Health Surcharge (IHS), increasing the Tier 2 (General) salary threshold to £30,000, and abolishing the Tier 2 (ICT) Short Term category. The Immigration (European Economic Area) Regulations 2016 will also come into effect on 1st February 2017. The main changes in the regulations are the introduction of a ‘genuineness test’ for Surinder Singh cases, the requirement for EEA applications to be completed on prescribed forms, and abolishing the right of appeal for extended family members.
What challenges does your work throw up regularly and how do you structure your approach in order to overcome them?
Immigration practitioners face challenges in keeping abreast of the ever changing and sometimes complex immigration rules and policies; monitoring regulatory developments, analysing their impact on both individuals and businesses, and implementing the necessary changes in the interests of our clients. It is important to actively engage in dialogue with regulators and participate in consultations, where possible. Our aim is to keep our clients informed of changes as soon as these are anticipated and to provide advice on overcoming any obstacles such changes will pose.
What are Ferguson, Snell & Associates’ major achievements?
Apart from ensuring our clients continue to receive the high level of service we have become known for, evidenced by the number of long standing client still with us, Ferguson, Snell & Associates continues our journey with a strong global team. By responding to our clients need for immigration and coordination services into the US, EMEA and emerging markets, we are growing from strength to strength. Our global team brings a new dimension to our business and sets us apart from our close competitors. Coming up with an efficient and strategic global immigration plan is a challenge when immigration is not included in the corporate agenda. But our skills in providing efficient and creative solutions is where we prove ourselves to our clients.
Client referrals and a professional, experienced and talented team is testament to our progress and reputation.
With an in-depth analysis into the overall effect of the pound’s fluctuation on small businesses, here Saskia Johnston, Foreign Exchange Expert at Sable International provides exclusive insight for Finance Monthly’s economy savvy on several ways SMEs can protect themselves for the coming years.
As we wait to see what kind of effect the UK’s looming exit from the European Union will have on the national economy, there is very little in the way of absolute certainties. The weakening pound is one of the only tangible consequences of the vote so far (political unrest notwithstanding), to the point that HSBC’s chief currencies analyst described it as the ‘official Opposition’ to the Brexit-enabling UK government.
But beyond the politics and macroeconomics of it, a weak pound has an immediate effect on the bottom line of many UK-based SMEs. Any company importing products from Europe has seen costs rise by at least 22% - enough to deliver a serious blow to margins, and for businesses with sensitive enough cashflows, enough to be outright lethal.
If you’re running one of these SMEs, it’s vital to protect your organisation against exposure to the weakening pound. Here’s how.
Forward contracts
As the UK and the EU continue to circle around each other, each peering suspiciously at the other, currency markets will continue to be volatile. Uncertainty is the new norm, so make use of whatever certainty is available.
Forward contracts represent a kind of security, if not certainty, for any company with a foreign currency amount due at an agreed date. They involve you agreeing a fixed exchange rate at a certain point in the future, and can cover an individual payment or multiple payments across different periods of time.
By setting these dates in advance, you effectively agree to buy or sell the pound at the predetermined price point for up to a year in advance of the sale or purchase. This removes currency risk for you and your supplier or customer – after all, for all that the pound has weakened in recent months, it also tends to shoot back up at times that might be inconvenient for the other party. It may limit your upside gain, but it takes the element of chance and the risk inherent in a changing political context out of the equation – allowing you to lock in your profit and continue working on your projects without losing money.
Limit orders and stop-loss orders.
If your currency exposure is shorter, it may be worth setting up limit orders on certain transactions. This has one chief benefit: it allows you to set a price target above where the market is currently trading, ensuring that your orders are automatically filled when this price is hit. This offers a clear upside and allows you to cover your bases in the event that the pound outperforms expectations.
Stop-loss orders offer the opposite, doing exactly what the name implies: preventing unnecessary loss. They insure you against the possibility of currency underperformance, allowing you to set a “worst case” price against the current market level.
Your order will be filled if the market drops to (or past) your protective price.
One Cancels the Other (OCO)
Of course, limit and stop orders are naturally complementary, and it’s possible to use both as part of a combined One Cancels the Other (OCO). This kind of arrangement allows you to run a limit and stop-loss order together, ensuring that the second your upper or lower price limits are hit, your orders will be filled – with the unfulfilled price target being immediately cancelled. You can also split your gross amount up into a number of smaller transfers if your currency need isn’t especially pressing.
This goes some way towards mitigating your risk and improving your trading position. When you know what your upper and lower rate limits are, much of the uncertainty of currency fluctuation is entirely removed – allowing you to ring-fence your revenues and focus on the things that matter most to your company, rather than the economic and political factors you can’t directly affect.
Of course, every business has different requirements, and the solution that’s most appropriate for yours won’t always be immediately clear. To truly hedge against the uncertain, it’s important to seek the right foreign exchange advice. Currencies may be unpredictable, but you can set your business up to make the most of them.
Melaine Campbell, Managing Director at Dun & Bradstreet, discusses her compliance predictions for the year ahead.
It is hard to ignore the impact that the one of the most turbulent political years in recent memory might have, not least on world of compliance. The overarching theme from the second half of 2016 seems to be countries making moves to do what’s best for themselves in regulation, rather than what works for the majority. From Trump to Brexit and all the regulations in between, 2017 will certainly bring uncertainty to the regulatory landscape…
In the US, Donald Trump has given some indication on his perspective on regulatory compliance: to eliminate regulations which are not in the public interest. In his economic policy platform he called for “a new modern regulatory framework” and outlined his vision on regulations proposing to “reform the entire regulatory code to ensure that we keep jobs and wealth in America” as well as “issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety.”
Since becoming President-elect, Donald Trump’s stance on Dodd-Frank has been scaled back, although it is apparent he still intends to dismantle the federal law passed in 2010. This deregulation would mean fewer stringent compliance checks and a rethinking of how to ‘red tape’ banks.
Furthermore, while Trump is concerned about burdensome regulations, he also is concerned about fighting terrorism and other crimes such as drug trafficking. His objective, as is the case with any administration, is to disrupt the financial flow to terrorism groups and other criminals.
Closer to home, it is also hard to say how Brexit will impact international regulation immediately, but it is clear from Theresa May’s speech on 17th January that the UK will leave the single market, revoke EU laws and set its own regulations in due course. As a result, there will be an even greater demand in the short and medium term for the compliance functions for businesses due to the increasingly likely outlook of complex regulatory negotiations.
In the midst of significant potential change in 2017, it will be vital for companies to make use of the latest data and insights to ensure that they are up to date with international requirements. Know Your Customer (KYC) will be vital, both from a compliance and business perspective; the compliance team can share insights with the rest of the organisation about potentially risky partners and prospects. Data must be current, accurate and be drawn from more than one source – such as using online news sources to support public records. Companies will also need to take care over how they use data, and be aware of possible changes to privacy laws in different territories. Working with a well-informed and compliant data provider will help to address this.
There is a view that even if regulation is scaled back, companies’ own compliance efforts will remain strong. There is growing acknowledgement in the business community of the importance of remaining compliant to demonstrate corporate social responsibility, and attract both customers and the best new talent. Through their compliance efforts, businesses can play a role in disrupting terrorist and corrupt organisations. By pursuing ethical and compliant growth, businesses can not only benefit themselves, but make a positive difference to the world.
(Source: Dun & Bradstreet)
Though the US’ 45th President, Donald J. Trump stole the headlines last week, Alpine resort Davos saw a sweep of discussions, announcements and interesting statements come from this year’s 47th World Economic Forum.
Here below we have picked out some of the top highlights from the four-day annual forum.
US-China Trade War
Keynote speaker Chinese President Xi Jinping opened the forum stating that “Protectionism is like locking yourself in a dark room, which would seem to escape wind and rain, but also block out the sunshine…No one is a winner in a trade war.”
Jinping and other Chinese spokespersons, throughout the forum, set out a strong position, a warning even, against Trump's intimidations to start an American trade war against China.
Chairman of Ali Baba stated at the forum that a trade war between the US and China would be disastrous, and that he would do all he could to prevent it. "I think that China and the US should never have a trade war, will never have a trade war, and I think we should give President-elect Donald Trump some time - he’s open-minded, he’s listening," Ali Baba’s Chairman said in a speech.
AIi Baba executives also announced the signing of an Olympic sponsorship deal and provoked the US on its concerns towards its military rather than prioritizing infrastructure.
Europe & Brexit
On topics of European politics, and their effect on global economic matters, delegates met to discuss, and thereafter agree or disagree, on how political shifts, due to ground-gaining anti-establishment political parties, can be addressed by institutions.
Brexit was of course a big talk at the forum; in the UK Prime Minister's attempt to woo London’s banks, describing the institutions as a “huge value” to the economy despite their announcements of accelerated action in transferring executives to the EU, May shifted her Brexit priorities towards financial services in the UK capital. She said: “I value financial services in the City of London, and I want to ensure that we can keep financial services in the City of London… I believe that we will do just that.”
Additionally, the UK PM was confident in portraying post-Brexit Britain as a champion in free trade, claiming that “The UK will step up to a new leadership role as the strongest and most forceful advocate for business, free markets and free trade anywhere in the world.”
An interesting comment came from Sergio Ermotti, CEO of the UBS Group AG: “2017 will be a very challenging year for Europe…You see what's going on with Theresa May (and Brexit) but also, we have elections coming in Holland, most likely it's going to come out that the Populist party will have a relative majority. You will see France elections, you will see German elections, Italian elections and they are all pointing out to a lot of divide within the EU on how to tackle these issues."
Trump’s Presidency
On the other hand, much discussion also surrounded the inauguration of Trump, populist politics and business confidence on the back of his intentions… and tweets.
“I think that these very rational people will be very thoughtful when they go about the actual policy,” said Jamie Dimon, CEO of JPMorgan Chase & Co., discussing the need to focus on Trump’s cabinet nominees, rather than worrying about his one-line tweets.
Dimon told reporters he was not concerned about the US’ future and its effect on the world’s economy, given that the real estate magnate and TV star has enlisted “very serious people” for the new US administration.
Though financially, many were on the fence in discussions surrounding Trump’s intentions in relation to finance, Wall Street’s high flyers spoke about being confident that the incoming administration will relax regulatory limits on financiers, though they are not counting on the new President to overturn Obama’s Dodd-Frank Act (2010).
On the last day, a discussion took place as to whether populist politics can be positive for the global economy, markets and moving onward. Both the election of Trump and Brexit were prime examples used to define whether populism is a detriment to economic affairs or not, and one of the overall conclusions that can be taken from the discussion was that Trump and similar scenarios “will be disruptive and bring the economy forward,” (Indian billionaire Anil Agarwal).
This however, was not a majority opinion shared by all, and has been an ongoing debate through various speeches at the forum. Philip Jennings, General Secretary of the UNI Global Union said: “I think Donald Trump is going to turn out to be the betrayer in-chief. If you look at the people that he’s surrounded with, there’s not one of them that’s got the working man’s interest at heart.”
But again: “In Davos, I’ve got the impression that the Trump election is being interpreted as thoroughly positive in economic terms,” stated Swiss Finance Minister Ueli Maurer to reporters on the final day.
Technology, Motoring, Climate Change and R&D
But of course, politics did not dominate the forum necessarily, leaving ample space for tech and manufacturing companies to make announcements and analyses.
Toyota Motor Corp. Chairman Takeshi Uchiyamada, says that due to the need for further infrastructure, fuel-cell automobiles will eventually become popular, but it will take much longer than it took gasoline-electric cars to gain status.
“The hybrid sold much faster than we had anticipated…as for the FCV cars, we assume it won’t be as fast as hybrid as the infrastructure needs to be prepared before it becomes major in the market,” he told Bloomberg.
Co-founder of Alphabet Inc., Sergey Brin said in a speech that the company was one of the biggest spenders on AI in the world as of late, stating that the boom in uses of AI technology “has been very profound, and definitely surprised me even though I was right in there and could throw paper clips at them."
Much of his speech revolved around advances in AI technology, their application to a variety of segments from law to manufacturing, the threat of job eliminating and further shifts in society. He says it is a priority now to focus on the “inherently chaotic” tech steps and how the world must adapt appropriately.
Another hot topic during the week was climate change. Campaigners are worried the US’ new administration will be the demise of fresh policies, action and protection. Norwegian Prime Minister Erna Solberg spoke on behalf of the many in stating that Trump may very well not implement the Paris agreement, which aims for nations to keep global warming levels “well below” 2C. Many activists said their prime focus now is on Trump’s moves and how they might affect global climate concerns.
On top of these developments, the Gates Foundation also announced the joining of a global coalition for vaccines, against infectious diseases worldwide, the Coalition for Epidemic Preparedness Innovations. Starting off with a funding of $460 million from the Wellcome Trust, Germany, Japan, Norway, and now the Gates foundation, the coalition aims to develop and deploy vaccines in record times to curb the spread of global diseases.
And finally, the entire forum itself went to prove to the world the gigantic advent of drone technology, in the form of security. Across the Davos resort, security staff were armed not only with counter-human measures, but also with anti-drone technology. Dedrone, a leader in said technology, provided the personal with a drone defence system. Police in the Canton of Graubünden then used the system to monitor critical airspace above the resort area in real time.
This afternoon reports indicate Theresa May, in her speech regarding Brexit negotiations, says the UK “cannot possibly” remain part of the European single market. In addition, the PM has stated that parliament will also get to vote on the final agreement with the EU.
Following the speech, Finance Monthly has heard commentary from the below sources, who have provided their insight into the developments.
Jake Trask, currency analyst, UKForex:
Sterling rose today as the markets welcomed the content of Theresa May’s speech outlining the framework of how the UK will approach its negotiations to exit the EU. The markets appear to have taken heart from the prime minister’s reassuring words, signalling that the UK government will do all it can to avoid a cliff edge scenario, where at the end of the two year process we default to WTO tariffs.
The PM said her preferred approach would be to implement the changes in a staggered manner. This controlled method of exit appears to have calmed market fears, with the proxy for Brexit sentiment, the pound, rising two cents against the dollar throughout the day.
Bruce Johnston, Head of International Finance, Morgan Lewis:
There are no plans for an overall transitional deal, but there may be interim arrangements to minimise disruption for certain sectors of the economy.
Free trade agreements with the EU and the USA will take many years to negotiate (long after the UK leaves the EU). Serious negotiation of free trade agreements cannot start until the exit agreement with the EU is signed (and ratified by the 27 EU countries).
We await the court case in Dublin which (amongst other things) may determine if the UK remains in EFTA after it leaves the EU. It appears that the UK government does not think so, by May’s statements on the single market and the customs union.
Mark Boleat, Policy Chairman, City of London Corporation:
The Prime Minister’s speech today added a degree of clarity for the Government’s Brexit strategy.
We welcome the Prime Minister’s ambition to retain the greatest possible access to the single market, which is important to the UK’s financial and professional services industries.
Passporting rights and access to leading talent – facilitated by the single market – has, in part, helped make Britain the world’s leading financial centre, but the Government fully recognises that protecting these vital industries is a priority.
Trade between the UK and the European Union has helped make our country prosperous. We welcome that Government recognises the value and importance of EU companies seeking access to the services of the City of London.
We also welcome the decision to trade more with existing and new international partners – this has the potential to be the prized trophy of the UK’s decision to leave the EU.
The City has been vocal on the need for a transitional arrangement from the time Britain formally leaves the EU and when the new arrangements come into effect. Following today’s announcement, this becomes an even greater necessity. We would like to see a transitional agreement announced as soon as possible.
Government’s phased implementation plan must avoid a cliff-edge and will be beneficial for firms across all sectors, especially financial and professional services firms. The Government must stick to this commitment.
Britain has long been a magnet for global talent. To continue the sector’s success, with 12% of City workers made up of European staff, it is important the flow of leading talent to the UK continues. We support the wish to maintain the rights of EU citizens currently working in the UK.
Charles Brasted, Partner, Hogan Lovells:
For those who have been listening carefully to Theresa May and the Government in recent months, today was the day when the PM had to face up to the implications of what has already been said. What the PM has done is to reaffirm the primacy of key commitments to taking back control of laws, courts and borders — and to admit that that necessarily rules out membership of the EU's clubs.
Mrs May's aspiration is a bespoke deal that emphasises access, not membership, that seeks to be part of a customs union – but not on the terms of the existing customs union, which preclude the UK striking its own trade deals — and that is based on on-going regulatory consistency and reciprocity. The impression from the EU is likely to be that this is precisely the cherry picking that they have warned against. However, the EU has shown itself able to agree sector-specific arrangements based on these principles and the UK's answer must be to show that it is seeking an agreement that preserves the best of the relationship for the benefit of both sides.
Mrs May has also been keen to reassure businesses and others by highlighting the intention for continuity of laws and rules immediately post-Brexit and for an "implementation phase" that would deliver the full future relationship over time through a smooth and ordered process of realignment.
Every one of the aspirations expressed by the UK Government today will demand exceptional political skill to negotiate and will be complex to implement legally and commercially. The objectives are now clear – the path towards them is uncharted.
Set to present the UK’s plans for the EU exit today, British Prime Minister Theresa May has ruled out any “half-in, half-out” situation, stating that the UK’s 12 point plan aims to not leave the nation with a sort of “partial membership,” but to build a "new and equal partnership" with the EU.
Within the 12 point plan, the PM says the UK intends to trade “as freely as possible,” but the government has not yet revealed much detail about the upcoming negotiations with the EU. It has however stated that the Brexit package talks will commence by the end of March.
It has taken over six months for the UK government to formulate its coming actions, and for now all eyes are on the UK’s intentions in regards to the single market, the customs union, and its trade relationship with the EU in years to come.
In previous reports, EU leaders have indicated that they will not allow the UK to “cherry pick” benefits such as the single market, while letting go of obligations such as the free movement of people. The PM on the other hand has suggested a curb on migration is one of the country’s top priorities.
According to the BBC, Labour's Sir Keir Starmer said: "Preserving our ability to trade successfully in Europe has to be the priority for business. Staying in the customs union is the best way to achieve that."
The United Kingdom’s decision to leave the European Union (EU) had a seismic impact on the global financial markets, and the geopolitics that sustain them. But what if the so-called Brexit referendum had a different result, and Britons voted to remain in the Single Market? Would we be any better off today? This week Finance Monthly heard from Evdokia Pitsillidou of easyMarkets regarding the titled question.
By any measure, the British pound may have certainly had a better fate had Britons voted Remain. Sterling was trading around $1.48 US on the eve of the June 23rd referendum, and even reached $1.50 just after polling stations had closed. Hours later, sterling was down to $1.33, having lost 10% against the dollar and reaching its lowest level in 31 years.[1]
But the bloodbath was not over. By October, the pound had dropped below $1.22 after newly appointed Prime Minister Theresa May signaled she would pursue a “hard Brexit” from Brussels. It was during this period that the sterling found itself trading at 168-year lows against a basket of other currencies.[2]
Although the pound was on a long-tern downtrend prior to Brexit, it is inconceivable it would have depreciated so quickly had the Brexit vote gone in favour of the Europhiles. Had the UK opted to remain, the pound may be lower than it was on the eve of the referendum, but not 18% lower as it is today. Brexit was therefore not just a defeat for the Europhiles, but for the once mighty sterling.
Brexit had the opposite effect on British stocks. The sharp depreciation in the pound was a boon to the export-oriented FTSE 100 Index, which opened 2017 on the longest run of record highs since 1984.[3] By January 10, London’s benchmark index had established its longest winning streak on record, printing nine straight days of record gains.
British stocks have returned nearly 19% since the Brexit referendum and are up more than 28% year-over-year. Underpinning their growth is more than just a weaker local currency. Less than two months after the Brexit vote, the Bank of England (BOE) slashed interest rates for the first time in over seven years and expanded the size of its asset buys in an extraordinary effort to stave off recession. The Bank’s moves may have been almost unthinkable had the UK voted to remain.
Just a few years prior, experts had tipped the BOE to be the first major central bank to raise interest rates. While the Fed beat it to the punch, it highlights just how unlikely the Bank’s rate cut would have been had Brexit gone the other way.
For policymakers, the hefty dose of monetary easing was justified, given they had just made their biggest quarterly downgrade of growth forecasts on record.[4] Thankfully, the British economy has held relatively firm over the past seven months, but that may to change moving forward once the British government triggers Article 50 of the Lisbon Treaty, the formal mechanism for leaving the EU.
Brexit may have also unleashed a wave of pent-up populism across Europe that is threatening to leave Brussels behind. Following the UK vote, nationalist movements in France, Germany and Italy are awaiting their opportunity to break away from Brussels. With elections in France and Germany coming up, investors are bracing for a potentially volatile year in the market.
The outlook on the global market wasn’t good before Brexit, and it certainly isn’t any better in the wake of the landmark vote. Concerns about free trade, economic growth and financial market stability have been exacerbated by Brexit, and the negotiations for the separation have yet to even begin.
A High Court ruling last month stipulated that Brexit cannot happen without parliamentary assent, setting the stage for a bigger legal battle for the British government. Prime Minister May appealed the decision, but may be upheld by the Supreme Court later this month.[5] For the Brexiters, this may mean a contingency plan. For investors, this may mean greater uncertainty about when, and if, Article 50 will be implemented. And as we know, uncertainty is the bane of the financial markets.
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After the New Year, the UK pound and FTSE 100 made significant progress, and according to reports, UK business confidence is at its highest in 15 months, eluding Brexit doomsday predictions.
BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, increased from 98.0 to 102.2 in December, above its long-term trend. This signals that businesses are continuing to stay resilient following the referendum result, the pre-2017 declining value of sterling and volatility in the global economy.
Finance Monthly reached out to numerous sources this week, to hear their thoughts on the pivotal pushes behind this increased confidence, reasons behind the inaccurate predictions of how the Brexit referendum may have affected UK business, and how this situation may progress in 1Q17.
Alister Esam, CEO, eShare:
Personally, this turnaround wasn’t unexpected – I didn’t buy into the doom and gloom that surrounded Brexit at the time. When we leave the EU, the UK will have a GDP of nearly 25% of the EU and it’s hard to take seriously any worries about us not having a trade agreement. The UK is a great country for business that will soon be released – Europe will remain struggling with inefficiency and a currency that doesn’t work.
People are finally thinking clearly about Brexit and what it means for business. Because the referendum result was so unexpected, people hadn’t really thought through the consequences. Those that did were positive in the first place, and others are starting to see that too, now they have been forced to consider what the implications and opportunities are.
I think people originally focused on the negatives. Now it is really happening they have had to focus on their own plans with positivity and find the not-insignificant opportunities this brings in being able to define our own rules, set our own taxation etc. Furthermore, the negatives were false – people argued leaving Europe meant we couldn’t trade anymore, which was daft. By definition, we will be the most EU-aligned of non-EU countries so we will trade with the EU more than any other non-EU country in the world.
I believe we will still have a tough ride in the short term. There remains uncertainty about how exactly everything will fall into place, and leaving the EU was never good in the short term. – it’ll take time for the benefits to emerge.
The on-going uncertainty is likely to affect UK business optimism over the coming months. European leaders failing to get down and solidify a deal, dragging out negotiations to steal pennies from the UK at the cost of pounds and Euros to both. It’s in no-one interests for negotiations to drag on so let’s hope it can be resolved as quickly as possible.
John Newton, CTO and Founder, Alfresco Software:
A positive side effect of global uncertainty is that it helps to push business resiliency. Enterprises will be open to new competition in a deregulated environment driven by significant political change. This, in turn, will positively force corporations and governments to establish new models, based on best practices.
However, it will be impossible to predict the next five years. Companies should be weary of being too optimistic and instead adapt to become more agile and resilient, whether trade deals are good or bad, inflation or not, and growth or not. Therefore, businesses must focus on bolstering digital core competencies and adopting new ways of thinking at the start of 2017. This will enhance enterprise organisations’ ability to deal with both new threats and beneficial opportunities as they arise. Platform Thinking, will help leading edge enterprises to thrive. It creates a single, scalable, central solution through which organisations can route information, automate processes, and integrate third-party innovation. Additionally, instead of building business plans, new digital enterprises should compose their business outcomes through Design Thinking, which puts the user first and solves problems for them. Using this approach will help enterprises design and adapt digital initiatives to respond faster and engage customers who also face uncertainty.
Deregulation is coming, and enterprises should adapt. For example, Blockchain is impacting our financial markets in the way that party-to-party contracts are managed. In the beginning of 2000, when companies weren’t getting their return on investment in the stock market, they turned to the power of data and peer-to-peer directives. Furthermore, asset-light industries (companies with fewer physical assets, and that tend to require less regulation), will emerge as the marketplace winners. While in the technology industry, computing platforms are evolving so rapidly that it is forcing architects and developers to almost relearn computer science. Cloud platforms, in particular, are changing at astounding rates. New concepts around microservice architectures, deep learning and new data, and compute techniques will again challenge the old way of thinking about things.
UK business optimism is set to be tested but there are huge opportunities for us to adapt and adopt digital transformation objectives. In the Fourth Industrial Revolution, it is no longer about who hasn’t adopted digital technology, but those who have digitally and fundamentally transformed their business, creating a new platform to connect with customers. Think AirBnB and Uber.
Owain Walters, CEO, Frontierpay:
Economic data releases have surprised to the upside in post-Referendum Britain, which is very encouraging to see. Nevertheless, the pound has actually been in steady decline since the result of the Brexit vote and is yet to make a turnaround. What we have noticed, is that the pound has plummeted whilst the FTSE100 has prospered as a result.
We must remember that the FTSE100 is full of companies that derive their incomes from outside the UK, and so as the pound has declined since the Brexit vote, their non-GBP earnings are now worth more. As a result, earnings of the GBP denominated stock in these businesses have improved, however, we must not confuse this with a turnaround in the pound.
I would certainly agree that the catastrophic predictions forecast on the immediate impact of the Brexit decision have been proven wrong. Unemployment continues to fall, GDP growth has continued, and we have even seen some high-profile announcements somewhat quashing forecasts of a halt of foreign interest in British business.
However, we can’t thank the pound for these encouraging developments. In truth, the fact that Article 50 has yet to be triggered means that Brexit has yet to have any significant impact on the UK. What we are currently seeing is a great deal of volatility in the markets as we wait to find out what kind of relationship the UK will ultimately have with the EU.
As long as the future of this relationship remains unestablished and the government continues to keep any details of a deal firmly behind closed doors, I believe it’s too early to tell if the predictions for Brexit will be wrong in the long term. That said, in at least the first quarter of 2017, I think we can expect to see further falls in the pound, a jump in inflation and steady GDP growth of around 0.5%.
Lynn Morrison, Head of Business Engagement, Opus Energy:
We recently surveyed 500 SME decision makers to find out how they had been affected by the Brexit referendum result. We found them to be unmoved, with 72% stating that their confidence was either unchanged or increased. Looking forward, it was extremely encouraging to find that nearly two-thirds of the respondents say they expect their income to increase and even expect to grow their business, in terms of headcount, by up to 20% in the next two years.
Considering the initial market reaction to the Brexit result, as well as the sharp decline in the value of the pound and initial drops in the FTSE250, this positive response may seem unexpected; especially given how many larger, more established businesses have been reporting otherwise. It’s likely that this reaction stems from SMEs’ focus on working within the confines of the UK borders. The Department for Business Innovation & Skills estimates that less than 10% of all small and medium sized businesses export directly to the EU, and only a further 15% are involved in EU exporting supply chains. This makes it easier for SMEs to embrace a new trading landscape, possibly less restricted by EU red tape, enabling them to continue with a ‘business as usual’ mentality.
Another source of SME confidence may be the fact that between the declining pound and the potential changes in our trade relationship with the EU, the UK is likely to look to its own businesses to help fill the gaps on products and services that had previously been imported.
Making up 99.3% of all private businesses in the UK, and with a combined annual turnover of £1.8 trillion, SMEs are the lifeblood of our country and their success is invaluable. I think it’s therefore hugely encouraging for the future of British business, and indeed our future relationship with the EU, that SMEs are expecting to not only survive the result of Brexit, but also to thrive in the coming years.
Salvador Amico, Partner, Menzies LLP:
Levels of business confidence were high before the Brexit vote in June 2016 and many businesses were optimistic about the future, bolstered by a strong Pound and UK economy. The Brexit vote result caught many by surprise and created shockwaves across UK businesses.
However, since the vote, it is evident that the world hasn’t ended and that things have moved on. Businesses, particularly those with extensive export operations, who were concerned pre-Brexit vote, have found renewed confidence brought on by the weak Pound and continuing enthusiasm by suppliers and customers to trade with UK businesses.
The UK economy is fundamentally strong and is still considered a world leader in many sectors such as tech and manufacturing. Even the property sector, which is often considered to be struggling in the UK, is benefitted from continuing inward investment, brought about by a weak currency.
Whilst the weak Pound has certainly helped boost business confidence, the UK has proven itself to be a good place to invest for quite some time. Low tax rates and a competitive market presence, combined with strong connections and a creative attitude have long made Britain an attractive place to do business.
Optimism indices have likely been affected by a general feeling that the world hasn’t ended post-Brexit vote, particularly with the majority of business owners who voted for Remain. Many of these businesses are now feeling that everything will be fine.
There has been a real push from businesses in some sectors to break into new markets and to find new customer bases abroad. Whilst there is still much more work to be done, the sense of optimism brought about by a potential increase in competitiveness caused by leaving Eurozone, is hard to ignore.
Dropping tax rates along with the opportunity to introduce new policies to support UK businesses will further boost confidence across the board.
The effects that a weakening Pound would have were perhaps underestimated by some financial commentators, and in particular sectors such as manufacturing, businesses which export will currently be feeling very positive.
It is also important to note that it is perhaps too early to say that the predictions were wrong and we may find that a year down the line the UK economy will look significantly different. This was the case with the effects of the financial crisis in 2008, where it took several years for a ‘new normality’ to resume.
Once Article 50 is triggered it is possible that we may see a further slight dip in confidence if we see the Government move towards a hard Brexit, effectively closing off free access to the EU trade zone.
However, once negotiations begin it will be the media who will play a large part in controlling business confidence through the ways positive and negative news is reported in relation to specific business sectors.
We may see that the Pound is going to remain weak for some time and exporters should make the most of it while they can. There is also still a lot of activity in terms of inward investment coming into the UK and lots of parties looking to make deals and secure contracts. Capitalising on this investment, along with looking to secure the best talent possible – regardless of location – will be key for UK businesses in the coming months.
Problems faced across the Eurozone are very likely to have a knock-on effect for the UK economy and should not be overlooked. Upcoming elections in France and the Italian financial crisis, combined with any slow-downs faced by the EU economy could have a larger impact than many people realise.
The strength of the EU market will be particularly important for businesses selling goods abroad and if that market cools or becomes more turbulent, the ripple effect will be experienced by the UK economy.
Omar Mohammed, Operations and Financial Market Analyst, Imperial FX:
It was a turbulent year in terms of political turnarounds – the unexpected Brexit decision and the unexpected outcome of the U.S election made 2016 one of the most unprecedented years. That caused a lot of loses, suspension of business, re-planning of strategies.
The indices markets in UK and US were on record highs after the Brexit. For instance, FTEE100 is mostly American firms which mainly depends on USD, so whenever the Cable (GBP/USD) is down the FTSE100 is up.
Predictions wrong about the impact of Brexit because of inaccurate opinion polls; both the online and phone polls predicted the majority would vote to remain. The length of the polls needs to extend beyond three days in order to reach hard to reach voters. The less well educated are under-counted in the polls while graduates are hugely over represented.
The first quarter of 2017 expected to be volatile and complicated. The cause of this disarray could be that May herself is muddled. While vowing to make Britain “the strongest global advocate for free markets”, the prime minister has also talked of reviving a “proper industrial strategy”. This is not about “propping up failing industries or picking winners. Her enthusiasm for trade often sits uncomfortably with her scepticism of migration. Consider the recent trip to India, where her unwillingness to give way on immigration blocked progress on a free-trade agreement.
In coming months, UK business will be affected as they will be waiting mid-March for the EU meeting to triggered article 50 which involve heavily on free-trade market and the free movement of European citizens.
Markus Kuger, Senior Economist, Dun & Bradstreet:
Ever since the Brexit vote, the sentiment in the UK has been a melting pot of distinctly differing viewpoints. From Pro-Brexiters to remain campaigners, businesses have been expressing trepidation as the worldwide markets continue to fluctuate. The sterling may have recovered somewhat towards the end of 2016 but has quickly dropped in value, following Theresa May’s hint that the UK will be looking to secure a ‘hard Brexit’. The 14.4% rise that the FTSE 100 posted over the course of last year looks to be a distant memory for the UK; a reason for the end of year boost was arguably due to overseas businesses.
The plain fact is that Brexit has not happened yet and Britain has yet to leave the EU. Against his promise (on which our post-Brexit vote scenario was built on), David Cameron did not invoke Article 50 in the morning hours of 24 June but resigned instead, which has temporarily helped to minimise the effects of the Brexit vote. However, Dun & Bradstreet still expects the Brexit vote to have a significant negative impact on the British economy, especially as ‘hard Brexit’ is now the most realistic scenario.
At the moment, the export-orientated sectors of the economy are benefitting from the weak pound, while domestically-orientated businesses are still being supported by robust consumer spending. That said, the invocation of Article 50, expected towards the end of March, and a potential ‘hard Brexit’ will test the fragile stability of the UK economy, especially as sharply rising inflation rates will reduce households’ disposable income. We strongly recommend that businesses ensure they have the risk management measures in place to deal with the changes. Ensuring that the proper risk solutions are implemented will best prepare a business for any potential market fluctuations.
Although we now expect the government to lay out its Brexit roadmap in the coming weeks, uncertainty will remain high as it will remain unclear if the UK’s and the EU’s positions are compatible and whether a compromise regarding migration controls and market access can be found. Developments in financial services are likely to have a huge impact on the broader UK economy – the financial services sector, including professional services, makes up 11.8% of the UK’s GDP. The impact of firms looking to relocate outside of the UK could have a knock-on effect that leads to further disruption. Our own recent research indicates that 72% of senior financial decision-makers are planning for change post-Brexit. Against this background, we expect businesses to continue to operate smartly and cautiously, while overall prospects in the UK are likely to remain extremely unpredictable in Q1 and beyond.
For context, Dun & Bradstreet recently released a survey on business confidence after Brexit. The results showed that:
(This November 2016 research surveyed 200 senior financial decision makers from medium and large enterprises in the UK.)
Kerim Derhalli, CEO and founder, invstr:
Positive initial data which emerged in the aftermath of the EU referendum has been the catalyst for an ongoing good feeling among businesses, with positive momentum offsetting any continuing political uncertainty.
The UK economy performed well in the run up to June 23, with GDP growth at 2.5%, which helped to cushion any perceived negative impact. Since then, businesses have been buoyed by positive consumer data which has remained broadly optimistic.
UK businesses focused on exports – many of which feature in the FTSE 100 – have enjoyed a boost from cheaper sterling, and are becoming more competitive overseas. Cheaper comparative labour is also having a knock-on positive affect for exporters.
In addition to this, the UK services sector contributed to a 0.6% growth in the economy in the three months following the Brexit vote, fuelling confidence through the end of 2016 and into 2017.
What many observers failed to recognise in the build up to, and immediate aftermath, of the Brexit vote, is that the UK and London in particular still remain highly attractive to international investors.
The core fundamentals that make the UK a good place to do business are still present, and will remain whether the country is within or out of the EU.
The City of London is a world leader in attracting business talent, legal institutions are among the most respected in the world, and UK universities lead the way in innovation and research, continuing to draw students from across the globe. Plus, the UK has the lowest corporate tax rate in the G7 – making it attractive for businesses – and the commercial property sector remains a desirable asset globally.
Predictions underestimated the strength of the UK economy, and the country’s role as a global provider of world-class goods and services. The UK has plenty of reasons to remain optimistic about the future.
Political uncertainty will be the main driver behind any lack of optimism for businesses in 2017. At the moment, the Government looks no closer to confirming any specifics around the terms of agreement between the EU and the UK and, if uncertainty drags on, it could prove a drain on confidence.
That said, a cheaper pound and better global growth prospects, as well as all of the positive business investments we have already seen throughout the end of 2016 and early 2017, will help to offset the uncertainty. This, in combination with the ongoing good data, will serve to strengthen business and consumer sentiment.
We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!
Jean Liggett, CEO of visionary property investment consultancy, Properties of the World, has revealed her predictions for the UK property market in 2017. Celebrating 5 years of experience selling investment properties, she has identified the key trends we are likely to see next year. Liggett comments,
"The dual impact of Brexit and tax changes in the UK are going to be felt in 2017. It's going to be a very interesting year for the property sector, with the usual laws of supply and demand encountering some significant interference from external political and economic factors. This means some new winners when it comes to popular asset classes, although of course some traditional investment opportunities will never go out of style (at least, not for the foreseeable future!)."
With changes to the buy-to-let investment rules brought in under ex-Chancellor of the Exchequer George Osborne, Properties of the World has found that investors are finding the residential buy-to-let market to be less profitable.
The company experienced a surge in buyers who already have traditional residential buy-to-let portfolios moving to purchasing hotels, student accommodation and care homes for the first time in 2016.
Jean also found that buyers who were just starting their property portfolio were choosing these emerging asset classes over residential buy-to-lets, due to the substantially higher returns on offer and the lack of additional costs during ownership. This trend is expected to ramp up significantly in 2017.
The remaining of second home stamp duty for buy-to-let investors will also continue to impact buy-to-let investors in 2017 as it has done in 2016, with lower priced properties of Greater London and areas beyond the M25 increasingly drawing investors away from the centre of the capital. Areas such as Luton and Slough are set to benefit, as are cities further north (most notably Birmingham, Liverpool, Manchester, Sheffield and Bradford). As Properties of the World's Jean Liggett points out,
"Investors can save on stamp duty at the same time as achieving higher yields than are on offer in central London."
When it comes to Brexit, one area of impact will be the interest of overseas investors in the UK in 2017. Sterling is languishing at its lowest rate against the dollar for decades, which creates opportunities for property investors buying in foreign currencies to make substantial savings by purchasing in the UK. With further currency fluctuations expected around the Article 50 triggering process in 2017, overseas investors are likely to be poised and ready to pounce.
Brexit is also likely to impact on property sales in the UK in 2017. Despite the interest from overseas, the Properties of the World team believes that the number of residential property sales in the first six months of 2017 will be lower than in the first half of 2016.
Despite a forecasted lower number of sales, there is likely to be positive news when it comes to prices. Although residential buy-to-lets will be more heavily taxed than before, there continues to be a chronic shortfall of properties in the UK, coupled with increased demand. Put simply, there are not enough properties being built to fulfil demand. This under-supply is expected lead to increased prices in 2017 or, in the worst-case scenario, properties prices remaining flat.
Finally, and again showing the effects of the Brexit process, Properties of the World believes that developments offering a fixed rate of return will boom in 2017. Fixed returns, along with no additional costs during purchase and ownership, provide investors with peace of mind and mitigates risk in an increasingly uncertain world. When investors are buying to supplement their income, knowing how much money they're going to be getting is essential.
Whatever happens, 2017 is certainly going to be a testing year for the UK property sector, but as Jean Liggett reminds us,
"Challenging circumstances can create exciting new opportunities for investors. Political change can have a big impact on property markets, but that doesn't mean the impact will necessarily be negative. Where one asset class or location may miss out, another will surely come along to reap the benefits!"
(Source: Properties of the world)
With Christmas shopping in full swing, it begs the question, ‘How are the UK’s SMEs fairing this season, despite Brexit?’ Avalara asked this question among UK SMEs in a recent survey. We found that, despite Brexit, more than 60% of UK SMEs say they won’t be making adjustments to their business this season. In fact, more than half (54%) are not concerned about Brexit impacting their Christmas season sales. Furthermore, 75% of SMEs said they are ready for the Christmas shopping season.
The Parliamentary vote on Brexit had added further confusion on the likely date of Brexit. While many companies may have already started drawing up plans, including exit strategies, the exact exit date of Brexit had been put in doubt given Parliament’s involvement in November. It is no surprise, then, that many businesses have chosen to take a ‘business as usual’ approach to the Christmas sales season.
Our poll also uncovered that:
To learn more about Avalara or to follow the latest Brexit news impacting the trade/VAT industry, please visit www.vatlive.com.
2016 has been quite a year for global property markets. China’s slowdown, the impeachment of Brazil’s president, the Brexit referendum in the UK and the US presidential election have all contributed to a rather tumultuous year. Will property markets fare any better in 2017? And where precisely are the hotspots that bear watching as the new year unfolds? Ray Withers, CEO of Property Frontiers reveals all…
UK – era of the staycation
In 2009, during the height of the recession, UK residents made 15.5% fewer overseas trips and 17% more domestic trips. Since then British holidays are still gaining in popularity: the number of domestic trips in 2015 was up by 11% on the previous year. The Brexit referendum’s repercussions may well change how we experience summers to come. This is the new era of the staycation.
While residential rental yields are likely to remain strong (outside of London), with so many unknowns house price changes remain tricky to forecast. For UK property investing in 2017, we believe that holiday homes, coastal cottages, and hotels will be popular with investors looking for a favourable stamp duty environment, high yields and insulation from market uncertainty. To maximise returns, look for regions with natural or cultural appeal, unflagging visitor numbers, and an undersupply on the hospitality market.
UK – the hangman loosens the noose on landlords
Philip Hammond’s 1994 election material slipped in a humdinger: ‘hanging for premeditated murder.’ The question is: when it comes to fiscal policy impacting landlords, will the new Chancellor play the hangman or the handyman?
With rock bottom mortgage rates and rent increases of 19% forecast for the next five years, it is still a good time to be a landlord. The lack of supply on the market could well spell a good opportunity for investors. University towns like Bristol and Cambridge and secondary cities like Liverpool, Manchester and Sheffield should remain on the radar for strong yields next year.
Europe – secondary cities withstand shaky politics
Europe’s fractious politics will have a big year in 2017. For an early indication of how those decisions might affect property markets, look to Italy and Austria in the aftermath of their December 2016 votes. The defeat of Renzi’s constitutional referendum in Italy, for example, could cause problems for struggling banks and infect the wider economy, including impacting mortgage lending.
The victory of the liberal over the far-right candidate in Austria’s presidential election, however, favoured stability and European integration. Given that Vienna is unlikely to end its seven-year streak atop Mercer’s global quality of living ranking and its housing market is just 20% owner occupied, the result may well safeguard the city’s growing reputation as a buy-to-let hotspot.
Other cities we think merit attention for high yields in 2017 include Lisbon (thanks to tech clusters and the historic centre), Utrecht (enjoying the Netherlands’ continent-beating 6.57% yields but without Amsterdam’s bubbly prices), and Barcelona (still down on its peak, with growing business appeal).
Europe – Brexit’s beneficiaries?
When (if?) Britain triggers Article 50 in 2017, will we see bankers transfer en masse from London to Amsterdam and startups relocate from Manchester to Hamburg? While large scale migrations are unlikely, the pressure will be on for British cities to reassert their global appeal if the property market is to bounce along at 8% growth again in 2017.
European cities will be putting up a strong fight, and battling to skim off what talent they can. Frankfurt and Paris will make particularly aggressive bids, but they will need to need to drastically improve their supply of office space if they are to become truly viable alternatives.
We may see a new trend for Brits doubling up their holiday or retirement homes as tickets to visa-free travel. Spain and Portugal could see a steep upswing in applications for their ‘golden visas.’
North America – punching above its weight?
The US rocketed past the UK as the stage for the biggest political upset of 2016 with the election of Donald Trump. The S&P Case-Shiller home price index ends the year at a new record peak and such punchy growth will likely continue into 2017. Even if the market proves to be overheated, more responsible lending means a sub-prime-scale implosion is a very distant possibility.
The other theme of US house price growth, its patchy distribution, may also become more pronounced. New York home values appear comatose in comparison to Portland and Seattle, where prices grew by 12% and 11% respectively in the year to September. Yet lunatic price hikes across the border in Canada, make even those numbers look comparatively demure; Toronto closes out 2016 leading the Teranet and National Bank of Canada index with an insane growth rate of 34.6%.
Further afield
South America may become a less daunting investment prospect in 2017, with Brazil and Argentina poised to shake off the political deadlock of last year and Colombia coming closer to peace. Our pick for an enticing investment target is Peru, where a new business-friendly government could revive the property boom and Lima’s hotel market should benefit from fast-growing visitor numbers, a generous tourist spend, and limited supply coming on to the market.
In Africa and the Middle East, the price of oil has played havoc with economies. Property markets could well see a boost if the price of oil rallies in 2017. This could benefit countries like Ghana and Uganda, where the economies are sufficiently diversified to avoid the pitfalls that accompany surprise discoveries of oil. Land development is already rife in their respective capitals of Accra and Kampala.
Investors have been glued to Iran’s gradual unfurling onto the global stage and will continue to look on in 2017, though caution is advised until President Trump’s official stance makes itself clear.
In Asia, Indonesia and Vietnam are making encouraging moves to attract foreign investors, and boast the economic growth to back it up. 2017 will be crucial for testing how well these new rules work in practice, and early birds who plan appropriately could catch the juiciest worms.
China might decide to employ state intervention for the forces of good to re-jig its land imbalance and loosen the notoriously prohibitive hukou residency permit system. This would allow demand and supply to better align and let some steam out of the Chinese property market’s swelling paper lantern.
Finally, our client database reveals a growing share of Indian investors contending with their Chinese counterparts as the dominant group of family buyers casting a wider net for safe havens overseas. Though the UK has not lost its appeal, we might expect to see them target regions closer to home as traditional Western markets start to feel more volatile.
(For more information please visit Property Frontier)
A commentary from Rick Nicholls, Managing Director, Bastien Jack Group Ltd, UK property developer.
In short, we have opportunity.
Initial shock at the prospect of leaving the EU sent the markets into decline, but have they not reacted pretty much as anticipated? Never letting a crisis go without opportunity, selling high to force a low, and then buy back? Since then there has been some indication stability is returning to the markets though GBP to USD and Euro are still trading lower. This is a good thing for UK exports, making them more competitive, assisting those companies that rely on export markets to grow. The UK vote for Brexit probably doesn't mean that the housing market in the UK is about collapse either. While some uncertainty in the short term may reduce house price growth, for the longer-term property investor, this could be a good opportunity for investing.
The foreign property investor has a boost in value-for-money
In the 24 hours after the Brexit vote, the value of sterling fell on foreign exchange markets. Not by as much as predicted but by around 6% against the euro and 8% against the dollar. As I'm writing this, the pound is now worth €1.11. This fall means the European property investor has more sterling to spend.
Demand for property, specifically in London from foreign investors is still likely to increase, interest has been high from China and Asia as their currency exchange has automatically allowed them a discount on current prices. This though is likely to bea short window of opportunity as we see markets recover from the initial shock.
Domestic demand will remain strong
Demand from home buyers and renters probably won't collapse either.
There is concern that demand for housing will fall in London and the UK. However, parliamentary research produced for the 2015 Parliament put demand at between 232,000 to 300,000 new housing units per year through to 2020. Demand for new homes is exceeding supply by around 150,000 every year. This demand, fed by the number of new households created each year, is unlikely to fall below the level of supply.
Immigration will probably remain strong
One of the main negotiations the UK and EU will have to discuss is the free movement of people. Despite the ‘Leave' campaign suggesting a limit to immigration, we now understand there needs to be movement but objective negotiations will have take place. This will form a significant part of the negotiations to leave the EU.
Outside the EU, the Prime Minister's current visit to India has the subject of immigration firmly on the agenda for a post Brexit trade deal.
Fundamentals of the UK Property Market
The uncertainty of the exact outcome of Brexit may cause the property investor a little nervousness, but the fundamentals for UK property remain strong.
In terms of capital growth, there are a number of comparable data choices but the Real House price tracker provides more meaningful guide to house prices and has been adjusted for the effects of inflation over the same period. Results confirm the increases in house prices have risen faster than inflation, and includes the last recession where the fall can be seen as a correction when compared to the overall property performance.
There has been widespread comment as to the likely effects on house prices, with falls of between 5% and 10% for areas outside London, though little evidence can be found to support this so far.
The BTL investor has also seen positive movements since 2001 with the size of private renters beginning to grow again.
Annual rent rises too have accelerated in recent years and these are not limited to London. Bristol and Brighton both enjoyed increases, averaging circa 18% in 2015 compared to the previous year. The insurer Homelet reported similar rises in the North (Newcastle upon Tyne and Edinburgh) with around 16% over the previous year. Ultimately the increases are attributable to what's happening in their specific area and will be influenced by strong fundamentals. Perhaps Hull can expect some positive growth when it is crowned City of Culture?
Rents in London have continued to rise with greater pace than other areas in the UK but have slowed since 2014, therefore a narrowing of the rent inflation gap between London and the rest of the UK.
Even with the recent policy change for buy-to-let investors paying additional stamp duty, more people have turned to BTL investments perhaps as an alternative to low interest rates, bolstered with the knowledge the pace of house building has not kept up with demand therefore sustaining their investment. At the time of the referendum result, there was speculation the base rate would reduce from 0.5% to 0.25% which did take place in August. The Bank of England indicated they would consider reducing further if the economy worsened, which so far has not been the case. It was also confirmed at the time, they also would add money to support confidence and restrict banks freezing liquidity, if not this would probably cause a further credit crunch and restrict mortgage finance. The governor of the Bank of England, Mark Carney, confirmed the reserve of £250bn can be made available if required.
Carney further commented the substantial capital held and large liquidity gives banks the flexibility to continue to lend to businesses and individuals even during challenging times. This suggests provision and safeguards are in place to maintain current lending to suit demand.
Since the referendum, the markets have rallied well and only recently fallen as investors are perhaps concerned that central banks around the globe are easing up on the monetary policies given the uncertainty of the US election result.
In the UK, mortgage approvals by the main banks increased in September after a 19-month low in August. They were lower than the year before but speaking with our local agents, they suggest it's down to a lack of supply of new build property rather than purchasing confidence.
There are four main areas for focus as we get to grips with the prospect of the UK outside the EU.
1) Calm - we have some indication this is already with us; the markets do seem to have calmed. This is probably due to all the positions the markets took on ‘Remain' have now well and truly played out. It's not over yet though, the volatility is set to continue until Article 50 has been triggered and a new directional plan from the government for the UK to leave is known.
2) Change - Nothing ever stays the same, what works for today may not be right for tomorrow. A pertinent example is Kodak, they tried to ignore new technology hoping it would go away by itself on the basis of it being too expensive, too slow, too complicated etc. It wasn't and their market changed irreversibly in a relatively short period of time, moving from wet film to digital technology.
3) Opportunity - Leaving the EU does provide opportunity. With price correction, there is opportunity to procure better land deals than prior to the referendum, as there may be fewer developers with available funding. Contractors had full order books and build costs had become very high prior to the referendum. We are aware some development contracts have been cancelled as a result of Brexit. Therefore, there might be more opportunity to reduce build costs as price elasticity plays out. The current volatility will ease. The fact the UK has to build more houses to meet demand won't change.
Bastien Jack Group Ltd has a strong project pipeline and always procures sites which have strong fundamentals and in areas where people want to live. There is a huge amount of due diligence which goes into every site appraisal including courting many local agents and advisors to confirm local demand and Gross Development Values. Speaking with agents in our pipeline areas, they have confirmed confidence is still strong and enthusiastic house viewings are still going ahead. As long as lending is still being offered and liquidity remains within the economy, there remains a great opportunity for us to progress.
(Source: Bastien Jack Ltd)
