Opinion: A real estate legal specialist explains why using Brexit to get out of a property deal is a very bad idea
Several days on from the result of the EU Referendum and, inevitably, many are wondering how leaving the EU will affect the London residential property market.
First, it’s important to take a step back and look at what was happening before the referendum. The 15 per cent stamp duty and annual taxes for properties worth more than £500,000 owned in corporate structures have already had a particular impact on overseas buyers, as has the removal of exemptions from inheritance tax.
The recent three per cent stamp duty surcharge, and impending reductions in tax relief available on buy-to-let mortgages from April of next year, have had an impact on the investment market too. And the stamp duty changes introduced in 2014 have dampened the market, especially for properties between £1.5m to £5m.
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Since the referendum result, the London property industry has experienced a significant reduction in email traffic and telephone calls. Clients, agents and banks, here and abroad are pausing to assess what the UK leaving the EU will actually mean.
Uncertainty is the consistent forecast for the next few months, while the UK considers how it will renegotiate its position within Europe and the worldwide market beyond the EU, and desperately tries to regain some semblance of political order.
The past few days have seen some isolated instances of purchasers unsuccessfully using the referendum result as a reason to renegotiate the price and terms of the transaction. Otherwise, it appears that sales and purchases of properties with solicitors are currently remaining on track. The odd purchaser has enquired whether they can withdraw from a contract following the referendum result.
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However, the date of the referendum had been known for many months and an attempt to cite the result as an unforeseen or extraordinary event freeing the parties from their contractual obligations will fail. Essentially, if a purchaser, having exchanged contracts, chooses to withdraw, the deposit will be forfeited and the purchaser could be liable for other costs and expenses, including the shortfall if the property sells for less on a later sale, and may even be the subject of an injunction for specific performance.
While some are unsure about investing in the London market at this time, it can also be seen as an excellent opportunity. The weaker pound has already drawn the attention of overseas purchasers to reinvest, as this mitigates the impact of stamp duty and other tax increases for London purchases in particular. It is also anticipated that the Bank of England will lower its base rate, which may put pressure on sterling, but also encourages UK home buyers as well as investors to buy properties in London.
Finally, we should not underestimate London. On several occasions, in the early 90s and, notably, post 2008, the market corrected itself and recovered quickly. London is a unique city – for many commentators, it’s unrivalled by any other city in the world – and for this reason it’ll always attract interest and investment.