Expert opinion: What will Brexit mean for house prices?

Whether you’re a staunch remainer or avid Brexiteer, there’s no denying that the uncertainty around when the UK will leave the EU, and the terms under which it may happen, is causing property market jitters and impacting house prices.

The Supreme Court ruled on Tuesday that the suspension of parliament by Prime minister Boris Johnson was unlawful, so MPs may return to work sooner than expected. If so, it’s likely that Brexit will be a key issue on the table in coming weeks.

Parliament has passed a law requiring the prime minister to ask the EU for an extension, but Mr Johnson has committed to leaving on 31 October ‘do or die’.

So what does all this mean for the property market?

The economic uncertainty caused by Brexit has undoubtedly affected the market, with house price growth slowing year-on-year and the number of sales taking a dramatic dip in recent months.

Rumours of a base rate cut before Christmas could also create further confusion for people weighing up whether to move house or remortgage.

We’ve analysed market activity before and since the Brexit referendum and spoken to experts from the estate agency, building, mortgage and buy-to-let sectors to bring you the insider’s guide to what could happen over the coming months.

What will a no-deal Brexit mean for house prices?

While increasing numbers of MPs appear to be opposed to it, a no-deal Brexit remains the default position if an agreement cannot be reached between the UK and EU.

Many business leaders and financial experts have expressed concerns about the potential consequences of leaving without a deal.

Accountancy firm KPMG has predicted that house prices would probably fall by around 6% following a no-deal Brexit, but that they could drop by as much as 20% in a worst-case scenario.

In July, the Office for Budget Responsibility said that a no-deal Brexit could lead to house prices falling by almost 10% by mid-2021.

Looking further back, Bank of England governor Mark Carney said in February that UK growth would be ‘guaranteed’ to fall in the event of a no-deal Brexit.

What’s happened to house prices since the Brexit vote?

House prices did stagnate for a while following the referendum in June 2016, as you’ll see in the chart below. However, it was fairly normal for that time of year: prices generally grow in spring and plateau over the following few months, a pattern that was repeated in 2017.

But, with Brexit looming ever closer, house prices fell much more sharply than usual after last summer.

August 2018 saw the highest average house price on our chart (which begins in early 2016), at £231,775, but prices dropped every month after that until April 2019.

As you can see in the graph, it’s normal for prices to start improving in April, so this indicates a return to a more usual seasonal pattern.

Are UK house prices falling?

Looking at year-on-year house price change over the longer term can be another useful way of understanding what the market’s doing.

The chart below shows what the annual rate of change has been each June since 2014:

As you can see, the rate of house price growth plummeted in the year after the referendum everywhere in the UK except Scotland, which remained flat.

Two years on, in June 2018, year-on-year price growth had improved in every UK nation except England.

But now, with Brexit fast approaching, the rate of growth has slowed everywhere but Wales, which has seen only marginal improvement (4.4% in June 2019 compared to 4.3% last year).

House prices in England have put in the weakest performance, increasing by just 0.72% year on year.

It’s impossible to say the extent to which Brexit has influenced these figures. Many argue that the house-price slowdown is simply a long-overdue market correction, which could help the thousands of potential first-time buyers who’ve been priced out in recent years.

Transaction volumes since the referendum

Another way of judging the health of the housing market is to look at transaction volumes, meaning the number of property sales in any given month. A lower number of sales can indicate market uncertainty, which is often triggered by events such as an election or referendum.

This is borne out by the latest data from HMRC, which shows a dramatic year-on-year drop of 12% in the number of residential transactions in July 2019 (86,630).

This represents the lowest number of property sales since April 2016, when the 3% buy-to-let stamp duty surcharge was introduced. (The spike you can see in the graph below was caused by investors rushing to complete their purchases before the new tax rule came into force.)

Interestingly, the referendum itself didn’t seem to have much impact on transaction figures.

What’s the pre-Brexit market like for sellers?

Two commonly used measures of how the market is performing for sellers are stock per branch – which is the average number of properties on each estate agency’s books – and time to sell.

The chart below shows that it’s taken people longer to sell their homes recently than in previous years. In January, the average time for a property to go under offer shot up to 77 days, the highest on record.

It has since fallen, dropping to 62 days in June and remaining level in July and August, but that’s still much slower than in previous years. Many commentators believe this is due to nervousness around buying a home in the run-up to Brexit.

Stock per branch is only slightly up year-on-year, from 52 in August 2018 to 54 in August 2019.

This could be indicative of seller frustration, with data agency TwentyCi pointing to 895,000 homes having been withdrawn from the market over the past year.

Brexit house price predictions: what do the experts think?

The charts above show us what’s already happened, but what lies ahead? We spoke to a range of industry experts to find out what they believe the future holds for the UK property market, both before Brexit and beyond. Here’s what they said.

The mortgage broker: ‘Don’t just jump into a fixed rate’

David Blake, Which? mortgage expert, says:

‘The political situation may be in turmoil but it’s important that buyers and homeowners don’t panic or make any rash decisions.

‘I’m sure many people are waiting until we know more about whether the UK will leave with a deal, but it’s tough putting your life on hold for an unknown.

‘Recent price drops in some regions mean that it’s becoming more of a buyers’ market, so you might be able to get a good deal. Besides, buying a property should generally be regarded as a long-term investment and, even if there is a short-term price drop, house prices will probably stabilise in the future.

‘Mortgage rates are incredibly low right now and many will want to fix into a low rate to give themselves security as we move into a period of uncertainty. But don’t just jump into a fixed rate without considering the alternatives – there are plenty of flexible products that would leave your options to remortgage open if rates did start to change.

‘Brexit is still a complete unknown, and while a professional mortgage adviser won’t have all the answers, they will be able to explain your mortgage options to help you navigate this period of uncertainty.’

The property pundit: ‘If you want to live there long term, buy now’

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says:

‘We’ve definitely seen a stagnation in the market over the last year in areas such as London, the South and East (which had all overheated), and this has spread to other areas over the last few months.

‘Buyers have held back in the hope that prices will fall, but as this hasn’t materialised across the board, they’re starting to come back into the market.

‘The difficulty now is lack of properties for sale, as people are worried they won’t get a good price for their property. This has led to a flurry of activity in some areas during the summer, but I think this will slow down due to the uncertainty of “what happens next?”.

‘Personally, I don’t think buyers should be put off by fears of a house price crash as long as they mitigate the risks. If you bought a property now, even if it did drop in value in the short term, the market would probably have corrected itself by the time you wanted to move (assuming you stayed there for at least five years).

‘However, if you’re considering buying somewhere for the short term it’s more complicated. Transactions are likely to stagnate towards the end of the year unless we see some clarity over Brexit.

‘In terms of buy-to-let, demand from landlords has already reduced and many have sold up. We are now seeing rent rises as a result – particularly since the tenant fee ban – so sadly this has impacted tenants more than agents or landlords.

‘With property deals available and rents on the rise, now isn’t a bad time to be a landlord as long as you really understand your objectives and whether the deal stacks up both now and in the long run.’

The estate agent: ‘Buyers and sellers are putting their plans on hold’

Mark Hayward, chief executive, NAEA Propertymark, says:

‘Brexit is undoubtedly causing uncertainty in the housing market, which in turn affects sentiment and decision-making, and we’re seeing both buyers and sellers put their plans on hold as a result.

‘Recent research from accountancy firm KPMG suggests UK house prices could fall by more than 5% if there’s a no-deal Brexit, which won’t help consumer confidence.

‘Once the current political impasse is resolved and it’s clear how and when we’ll be leaving the EU, we hope there will be a degree of certainty which may trigger a flurry of activity. We hope this certainty is provided sooner rather than later.’

The buy-to-let expert: ‘Portfolio landlords will fare well’

Chris Norris, director of policy and practice at the National Landlords Association (NLA), says:

‘The issues troubling most landlords are the status of non-UK, and in particular EU, citizens, given their responsibilities to police the Government’s Right to Rent policy, as well as the overall impact that divergence [Brexit] will have on the stability of the housing market.

‘It is still too early to predict what impact Brexit will have on property values. A weakening of the appeal of UK investment could drive prices down or a lack of certainty could drive up interest in the relative stability of bricks and mortar.

‘Likewise the relative low value of the pound could result in an influx in overseas investment. At this stage we simply don’t know.

‘On a day-to-day level, changes to immigration policy could reduce demand from those coming to the UK, or drive up interest from those taking advantage of new arrangements with states outside the EU.

‘It is likely that landlords with established, well-capitalised portfolios will fare reasonably well. However, those heavily reliant on finance may find uncertain conditions more troubling.’

The housebuilder: ‘We need skilled labour from abroad’

Stewart Baseley, executive chairman of the Home Builders Federation, says:

‘Unlike the wider housing market, where transactions have dropped considerably from the historical norm, the new-build market has remained relatively strong in recent months – although there are some challenges at certain parts of the market and areas of the country.

‘The confirmation in the Budget of an extension to the Help to Buy scheme was welcome. The scheme is ensuring demand for new-build homes remains strong [and]… the certainty of demand is enabling builders to plan ahead to increase output in the coming years, as is demonstrated by the record high number of planning permissions being granted.

‘To enable increases to be delivered the industry needs certainty about future labour supply. It is essential that, post-Brexit, the industry continues to be able to access skilled labour from abroad if housing targets are to be met.’

 

This article was first published on 1 November 2018. Copy, charts and quotes have been regularly updated since then to reflect newly released data and the latest Brexit news.

 

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