Like the negotiations themselves, making predictions on the property market’s response to Brexit is clouded by a range of competing variables.
Amongst all the seemingly contradictory headlines and data, the truth is that nobody – even the ‘experts’ – really knows what’s going to happen.
Nonetheless, Ruban Selvanayagam from quick sale experts Property Solvers has put together a bird’s eye view on how some of the possible outcomes could impact the industry moving forward.
First, to cite some recently released data…
Current Market Conditions
- According to the latest Gov.UK House Price Index, average house prices saw an annual rise of 1.2% (to April 2019);
- The latest Hometrack UK Cities House Price Index reported the highest level of year-on-year growth in Edinburgh (5.1%) followed by Liverpool (4.9%), Cardiff (4.7%), Nottingham (4.7%), Leicester (4.6%), Manchester (4.1%) and Birmingham (4.0%). According to the same dataset, London saw a 0% change in house prices and Cambridge saw a 0.3% drop;
- HMRC data revealed that transaction levels fell by 16.5% between June 2018 and June 2019;
- Despite the ongoing Brexit-induced pessimism, the latest Royal Institute of Chartered Surveyors (RICS) report stated that there has been an increase in buyer enquiries after declines over the initial half of 2019. 12-month expectations are indicating continued growth in sales volumes and prices.
No-Deal or ‘Disorderly’ Brexit
Let’s assume that the UK and EU cannot agree on the future relationship and the divorce is messy.
Regardless of your position on the debate, it’s hard to deny that such a scenario would cause a degree of volatility to both the economy and the property market. Whether this would be in the form of a recession-fuelled crash, however, remains a moot point.
The Office of Budget Responsibility has recently predicted a 10% drop in house prices in a no-deal scenario (up to mid-2021).
Back in 2018, a series of Bank of England stress-tests also pointed to property prices dropping to as much as 33% over three years as a result of a ‘worst case’ no-deal outcome.
Whilst some in the Brexit camp will be quick to refer to previous negative house price predictions never coming to fruition, this time we would have categorically left the EU. In other words, we would be entering unchartered territory and housing would be one of the first industries to feel the effects.
There’s little question that an uncompromising no-deal political rhetoric would result in Sterling’s devaluation. The result would be a rise in consumer prices (inflation).
The impact of interest rates
Yet, despite these pressures, the Bank of England may choose to stall intentions to raise interest rates. This would be aimed at limiting potential defaults amongst the many mortgage holders now accustomed to comparatively low monthly payments.
The negative impact of rising interest rates on businesses across the country is also an important consideration. Combine this with the risks of eroding wages, lower consumer confidence and growing unemployment and the Monetary Policy Committee (MPC) will have to tread carefully to minimise economic damage.
However, in an inflationary environment, it may be difficult for the Bank to keep base rates low.
Indeed, the Bank and the government may not have the same financial levers available to them compared to the aftermath of the 2007-08 recession.
The impact of immigration
There are also wider implications for housebuilders at all levels in response to tighter immigration policy. For example, an estimated 28% of skilled labour in the London construction industry comes from Europe.
Although it would be extreme to presume that these workers would disappear overnight, proposed restrictions on free movement and an immigration policy based on ‘high skills’ only would almost certainly cause recruitment issues.
Combined with rising construction costs, such an outcome will certainly fare badly on delivering the large number of new homes the country vitally requires.
Landlords who let properties to people from the EU may also struggle. This is the last thing they need on top of all the other clamp downs such as Section 24 of the Finance (No. 2) Act 2015, Prudential Regulation Authority (PRA) stress-testing restrictions and the stamp duty surcharge.
Potential positives of a no-deal Brexit
But are there any positives for the housing market from a no-deal Brexit?
All the calamity could mean that we’re in for a buyers’ market.
Should prices drop, first-time buyers may have the opportunity they have been looking for, particularly if interest rates stay low and the Help to Buy scheme continues. However, one of the consequences of no-deal could be that the mortgage lenders are forced to tighten their purse strings.
A weaker Sterling value could turn the UK into an off-shore investor’s delight – particularly as the country will continue to be recognised as safe, transparent destination.
Combined with recent announcements to further cut corporation tax, widen the threshold on higher rate income tax and reform stamp duty policy to pre-2007 levels, investment activity in certain sectors may be able to buoy the property market as a whole.
Brexit Deal in Place
Although it certainly wouldn’t be plain sailing, and many in the Leave camp would be dissatisfied, this is probably the best outcome.
Of course, the devil would be in the detail, but a Brexit deal of some sort may at least give the economy some breathing space and a degree of clarity about where things are heading.
As a result, whilst we probably wouldn’t witness a housing market ‘boom’, particularly in the south, there would arguably be a renewed sense of confidence across the board.
No Brexit At All
Although unlikely at the time of writing, a fresh Referendum that results in a remain win has the potential to change the trajectory of house prices for the better.
Yet, although the cloud of uncertainty will dissipate to a certain degree, it would be naïve to expect the question of the UK’s departure EU to be simply brushed under the carpet.
The likes of the Brexit Party will have a renewed drive to push for yet another referendum. The result, in our view, would be to ‘kick the Brexit can down the road’ and, whilst some growth may be seen, a drawn-out spell of political indecision will hamper anything reasonably predictable from happening.
Other Scenarios
Of course, there are a number of other possibilities that could come into play.
I’ve not mentioned a potential Labour Victory in a General Election. Jeremy Corbyn as Prime Minister could drastically alter the state of the market – arguably more so than anything else.
Expect rent and house price inflation controls as well as higher taxes across the board. A proposed progressive tax on owners, recently proposed in the party’s ‘Land for the Many’ report, is aimed at replacing council tax and discouraging homes from being used as financial assets.
On the plus side, there would be likely to be a greater impetus to drive the delivery of social housing. Although successive governments continually promise to reduce the growing level of homelessness, it would be fair to say that the left-leaning Labour party would be more likely to push the agenda forward.
To Conclude…
As a professional sell house fast company and estate agency, when our clients express concerns about the impacts of Brexit on their ability to sell, our general advice is to ‘keep calm and carry on’.
Especially when it comes to the property market, popular media specialises in creating hysteria to attract eyeballs.
It’s often best ignored.
House prices will always move in cycles and, although Brexit may certainly have an influence, it’s impossible to say by how much.
Those in much of the South would have also benefitted from massive equity growth over the last decade. This is likely to mean that any drop will be comfortably cushioned.
For those that may need to sell in a down market, remember that you’re not the only one. As the rest of the market is dropping, any pending or future buys you make would be priced lower too.
