Will Brexit cause house prices to crash? Experts give their predictions for the property market
With just four months to go until the UK leaves the EU - with or without a deal - a number of scenarios could play out in the housing market. No matter how you voted in the EU referendum, there’s no denying that as the UK’s departure from Europe approaches, the unknowns surrounding Brexit are weighting down on the property market.
And a warning by the governor of the Bank of England, Mark Carney, that a disruptive no-deal Brexit could wipe 35 per cent off house prices, alongside the current turmoil in Westminster, has done nothing to calm nerves.
When Cabinet approved Theresa May’s draft withdrawal agreement earlier this month, some of the UK’s largest house builders, including Barratt Developments and Persimmon, tumbled on the FTSE 100. With just four months left until the UK leaves the EU and no certainty over whether it will be in a no-deal scenario or not, what is going to happen to house prices? Is a property crash coming? i asked property and money experts for their predictions.
What are the signs of a property crash?
A crash occurs when either the money to purchase properties dries up and the market is forced to slow down, or when the cost to buy or rent becomes prohibitive. Property investor and author Vicki Wusche explained: “In 2007, it was the shortage of loans that triggered a problem, combined with an increase in interest rates.
“Potential home owners and existing home owners found it difficult to make payments, difficult to move, and so panic set in.”
What effect is Brexit having on the market now?
As Theresa May negotiates the UK’s departure from the EU, interest from new property buyers has weakened. The average UK house price fell by £5,222 or 1.7 per cent in November, according to Rightmove.
The property website said it is usual for asking prices to decrease slightly over the festive period, but the latest statistics indicate the largest month-on-month fall since 2012.
A separate report from estate agent Savills also suggests the house price divide between London and the rest of the country will narrow by up to a fifth over the next five years.
In the North West, property prices are set to increase by 21.6 per cent over five years, while prices in London bear the brunt of Brexit angst.
Miles Shipside, director of Rightmove, said: “New sellers and their agents are reacting to market forces and lowering their pricing aspirations by more and sooner than usual.
“Stretched buyer affordability and the cooling markets in the South and in upper price brackets have combined with the ongoing political uncertainty to change pricing optimism into pricing realism.”
But it’s not all doom and gloom. Overall, the UK’s house prices rose by 8.13 per cent on average (from £215,078 to £232,554) since Article 50 was first triggered in March last year, according to latest ONS UK House Price Index report.
Top 10 areas with the biggest asking price reductions
1. Bradford, 7.77%, (£10,738)*
2. Mitcham, Greater London, 7.45%, (£47,165)
3. Newcastle upon Tyne, 7.18%, (£13,721)
4. Doncaster, 7%, (£13,915)
5. Bolton, 6.97% (£15,874)
6. London, 6.89% (£64,661)
7. Chesterfield, 6.81%, (£16,567)
8. Blackburn, 6.78%, (£8,893)
9. Liverpool, 6.77%, (£13,078)
10. Blackpool, 6.70%, (£10,113)
*Average reduction in percentage and cash terms (Source: Zoopla)
Whilst the rate at which they’re rising may be slightly steadier than pre-Brexit, those prices are still going up, according to Andy Foote, the director of property developer SevenCapital.
He said: “Whilst a drop in value is never a welcome occurrence, experienced property investors will know that if Brexit were to trigger a downfall, effectively it is just a catalyst for the inevitable. The property market, goes up and down over time. Once it’s been down, it comes back stronger, and then the cycle repeats itself.
“Furthermore, if investors are slowing down their buying activity because of uncertainty over Brexit, seasoned and active investors still confident in the market will see this as an opportunity to purchase whilst the prices are slightly down, so that they gain more when they go back up again.
Consumers are also remaining optimistic about the property market. Some 55 per cent are still expecting property prices to rise throughout 2019, according to Zoopla’s latest State of the Property Nation research.
With ongoing uncertainty from Brexit, Zoopla expects modest, single digit property price growth of 2-3 per cent heading into 2019.
We haven’t left the EU yet. Is a property crash still coming?
The short answer is probably not – although no-deal Brexit could change that.
Ruban Selvanayagam, co-founder at Property Solvers, said: “Whether Brexit will prompt a property crash is too hard to say. Should a no-deal Brexit come to fruition, the pound could tank and fuel inflation.
“The Bank of England could then be forced to raise interest rates beyond the historical lows we’ve seen since the 2008-09 crash.
“This could potentially lead to some kind of correction in the property market. But, again, these things are very hard to predict.”
Vicki Wusche added: “I don’t believe a property crash is coming. Certainly not in the way that it occurred in 2007.
“This time there is still a danger of panic caused by Brexit but if the other factors are not in play we shouldn’t worry.
“Interest rates are low, the Monetary Policy Committee must manage the need to control inflation with the ability of the UK to trade effectively. But I don’t believe interest rates will reach 5 to 7 per cent in the next three years – and if they do we will have more to worry about than a housing crash.”
According to Deborah Vickers, channel director at MoneyGuru, a number of scenario could still play out with the housing market.
She said: “People are waiting to see what Brexit brings, and it’s possible we won’t see any house prices fall. What could change the market is regulation and the banking and mortgage market.”
First time buyers: should you wait until after Brexit to buy a house?
If there’s one thing that’s absolutely clear about Brexit, is that it has made everything feel a little uncertain.
So if you’re a first-time buyer, what should you do? Is it wiser to wait until March has come and gone, or take advantage of attractive mortgage rates today?