Markets unconcerned about potential UK exit from Europe

While there is much talk in the press about the forthcoming UK referendum on membership of Europe it seems that property market are unconcerned at this moment in time. The Nationwide Building Society recently announced profits of £1.2 billion for the last financial year citing a very strong UK property market. The company also believes that the UK mortgage market has potential for further long-term growth with the proviso that investors do not become concerned about the referendum on membership of Europe.

Can lessons be learned from the Scottish independence referendum?

In the run-up to the Scottish independence referendum last year, a two-year run-up which began to impact business investment, markets were relatively unmoved by the vote with many seeing it as a non-event. However, as we moved closer to the voting date there was concern across the financial markets that Scotland might vote for independence.

Perhaps the greatest lesson we can learn in relation to the forthcoming European referendum is that these issues need to be addressed in a swift and timely manner and not allowed to drag on. The two-year period in the run-up to the Scottish independence referendum led to a reduction in business confidence, splits across both the public and corporate community and Scotland is still recovering today over six months after the actual vote.

Will markets become concerned about a possible European exit?

The reality is that markets will likely become a little more concerned about the potential for a European exit as we approach the actual vote. One other issue to take into account is the fact that during both the Scottish independence referendum and the recent general election, opinion polls were found to be misleading. There is the potential for financial markets to discount opinion polls ahead of the European referendum and perhaps factor in and a greater risk than the situation actually poses?

Any increase in the risk/reward ratio will see the cost of borrowing move higher, at least in the short term, until the situation is clarified. Those who follow the financial markets, and indeed the property market, will be well aware that uncertainty is the greatest fear of investors because whether it is a worst-case scenario or a best case scenario these elements will be factored into asset values with more certainty, once they are known.

Is there more political risk ahead?

Historically the UK property market has not been overly appreciative of the political arena although during recent times we have seen the Scottish referendum, the general election, a mansion tax threat and now we have the European referendum on the horizon. There is also the Scottish election in 2016 which may create some uncertainty in the financial markets – which will obviously impact the property sector.

The likelihood is that the forthcoming political issues will have little or no impact on investment and property markets in the medium to long term but it is the short-term uncertainty which might increase volatility. It has certainly been an active time on the UK political front!