How will Brexit Affect UK House Prices?
A comprehensive overview & discussion of UK house prices after Brexit. Here we analyze various factors regarding the property market and Brexit.
- Updated January 2020.
1. Market Fundamentals
2. House Prices & Brexit
Section 1 - Market Fundamentals
In this section we discuss market fundamentals in relation to house prices after Brexit.
UK House Price Trends During Brexit
Since the financial crash of 2008, the UK property market has seen year-on-year growth.
The vote to leave the EU which took place in June 2016, left the property market in general, unaffected - The usual annual property price trend continued during the remainder of 2016 and the whole of 2017,18 & 19.
House prices in London fell by an average of 1.8% in 2019, however, it should be noted that the properties in London most affected by Brexit were those at the higher end of the price scale. Properties in London which are in high demand have experienced smaller price decreases.
The lower prices in London have also been offset by property prices in other areas of the UK, especially in the North.
By the end of 2019, the average property price in the UK was in fact 1.4% higher than in December 2018.
As can be seen in the figure below, there has been a small decrease most years in the average UK house price.
As prices fluctuate in the short term, large media outlets will portray a current event to be the cause, yet it is common for prices to dip slightly prior to a future increase.
Source: ONS House Price Index
UK Housing Supply and Demand
During 2019, the UK property market was fairly stable, with little action from buyers and sellers alike. This increased the time which properties remained on the market before sale.
We, along with many others in the industry, attribute this to the fact buyers and sellers were apprehensive and were waiting to see the outcome that Brexit would impose on the property market.
Due to the apprehension during 2019, we predict that the in the coming weeks leading into February, both buyers and sellers will have had enough of waiting and will simply get on with their intended purchases/sales, leading to a surge in transactions.
There is still a large demand for property in the UK. It is estimated that England requires around 240,000 new properties to be constructed each year to meet current demand: High demand = support for property prices.
However, there is a downside to high demand with a limited supply of available housing.
During 2019, the average rent increased by 2.7%, with areas such as the North East increasing over 4%. Rental prices are also on trajectory to increase further during 2020. This is making it increasingly difficult for first time buyers to enter the market as a large proportion of income will be spent on current rent.
Property Developers Outlook
Development has undoubtedly slowed in recent times due to reduced buyer confidence. However, there are a number of property developers who are keen to begin constructing new properties;
The British Property Foundation conducted a survey and found that 41% of participants were looking to increase property development activity in 2019. We're yet to check whether this figure has increased for 2020.
Kingfishers, a European law firm conducted a survey which found that 45% of respondants are intending to increase revenues in commercial property during 2020, with 31% believing that there is an opportunity ahead in residential units. 27% of respondants believe that the market will remain fairly stable but flat during the year.
European Property Sales and Brexit
After the referendum, the value of the pound decreased against the Euro, thus increasing the cost of purchasing overseas property.
Yet, purchasing overseas property has been fairly unaffected - British citizens have continued to purchase holiday houses in France, despite it now costing more to purchase property abroad.
There are property investors who have also continued to invest in French property. It is thought that even if the pound decreases further in value, that the Euro will remain strong and thus be a safety net for their portfolio.
Over the years, the French property market has shown growth at a steadier rate than the UK market.
On the flip side, a weaker Pound makes British property attractive to overseas investors. With more interest from foreign investors, the market will be propped up and will potentially bring in new, much-needed property developments.
Section 2 - House Prices & Brexit
In this section we discuss how house prices may pan out post Brexit with various scenarios.
House Prices After Brexit
What will happen to house prices after Brexit? Will prices tumble? Are the questions on everyone's minds;
There is not any reason to be overly concerned - The majority of professionals in the property and banking industries are forecasting the UK property market to either rise or remain flat in 2020, not collapse as many media outlets would like you to believe.
There may be a small price correction in the weeks after the final deal of Brexit is completed, however, it is expected that the property market will rise and continue on its usual trajectory, as it has done every year after small price corrections.
This can be seen on the figure below.
The average UK house price is plotted from May 2016, before the referendum took place. A trend line placed over these data points indicates that the house prices should again continue to rise after Brexit has concluded; To reiterate - it is a normal occurrence for property prices to fluctuate.
Data source: ONS House Price Index
Will Brexit cause house prices to rise or fall in 2020?
The general concencus for 2020 is that there will be a small increase of between 1-2% for the average UK house price, even with Brexit in the picture.
It should also be noted, that this range is for the national average. It is expected that cities such as Liverpool and Glasgow could see increases of up to 4% during 2020.
So, will Brexit cause house prices to rise or fall in 2020?... Answer - A rise.
Brexit is fundamentally concerned with international trade deals - think industries such as steel production, foods, etc. Property does not heavily rely on import/export as other industries do. Property is much more of an internally influenced market;
The reason we've experienced stagnant prices isn't to do with trade deals, but the apprehension of buyers & sellers to complete on transactions until the final deal and deadline of Brexit has been reached.
Will Brexit Cause a House Market Crash in the UK?
In the forefront of a large majority of those invested in the UK property market, is whether Brexit will cause a housing market crash.
If you are involved in the property market, or are thinking about investing in the market, we'll remind you that property investing is not a "get in, get out" strategy.
Over the last 100 years, UK house prices have continued to rise; Yes, the market crash of 2008 caused a significant hit on UK property, however this was a global event which affected large, global financial institutions.
While it may seem that a large proportion of people believe that Brexit will cause a housing market crash in the UK, we would have to disagree. As mentioned above, all property fundamentals remain unchanged, and since the market has been stagnant for a prolonged period of time, we would expect to see a market bounce once Brexit is finally completed, or perhaps even sooner as buyers & sellers just move on with their intended dealings.
Will a No-deal Brexit Affect House Prices in the UK?
There have been claims that the recent changes within the government may result in a rash decision of leaving the EU with no deal.
As would be expected, this may be causing you concerns if you're invested in the property market, especially if you've read headlines stating a no-deal will cause a crash.
In line with the overall gist of this article, we do not believe that the worry of a hard Brexit/no deal should keep you up at night.
Why do we believe this? ; Regardless of whether a soft or hard Brexit is undertaken by the government, the majority of underlying fundamentals of price drivers in the property market will not be affected in the same way that industries which rely on imports/exports from the EU will be affected.
In the most simplistic view, there won't be a decrease in demand for residential properties and there are no underlying factors causing a price bubble. Therefore prices and rents should remain consistent.
We believe the most affected division of the property market will be those who profit from house flipping - on average it may take slightly longer to sell a property in the few months after a deal or no-deal Brexit.
With the Conservatives elected with a majority vote, we would expect the political certainty to settle the property market, allowing for the "usual" trends to continue, which will provide much needed confidence and growth to the property market. This may encourage developers to increase production, those debating to sell or hold to sell and buyers to flood into the market.
How will Brexit Affect Mortgage Rates?
Banks and mortgage lenders are still showing confidence in the UK property market.
Mortgage interest rates are overall still at an all time low and the average loan-to-value available has not been decreased either - indicating that they are confident there will be no market crash after Brexit.
You shouldn't fret over mortgage rates - The BoE does have a long-term strategy to steadily increase mortgage rates, however they are unlikely to make any changes until Brexit uncertainty has settled.
With current mortgage stress tests, banks, landlords and developers are all safely prepared for any decrease in the property market or interest rate rises - Lenders ensure that borrowers are able to keep up with payments if markets reverse under any circumstances.
It is unlikely that we'll see a rise in mortgage rates anytime soon. If there was however an increase, it would likely only be small and nothing significant to warrant any concerns over the property market.
It is expected that rates will remain stable at present and in the near future, which is good news for both seasoned investors and first-time buyers alike.
A point which should be noted is that the number of mortgage approvals has been decreasing slowly. With a general view, this is not be entirely down to Brexit, but a combination of Brexit uncertainty and the difficulty a large proportion of the population face in getting onto the property ladder; property prices have increased much more than the average wage, however we're a long way off from the sky-high prices of property in Canada.
Should I Wait to Buy a House Until After Brexit?
If you are looking at the property market with an extremely narrow window of get-in, get-out type of mentality, property investment may not be the ideal route for you to spend your money.
Investing in property is a long-term strategy and historically, property prices have increased year on year.
That said, you could wait until after the UK leaves the European Union to invest in property to gain a slight advantage in a potentially lower price, but your timing would have to be perfect - many sources expect Brexit to cause house prices to rise.
First time buyers:
If you have found a property which you'd like to live in for the next 5, 10 or even 15 years, then there would be no harm in purchasing a property now, provided you are able to keep up with mortgage repayments even if interest rates were to rise slightly for a couple of months.
As previously stated, by the time you'd be looking at moving out, your property will have increased in value.
For a short-term view, opening a fixed rate mortgage with the current low rates would be a sensible option as you will be covered if rates do increase for a couple of months after the final Brexit deadline.
With some areas of the UK seeing price reductions, low mortgage rates and first time buyer tax relief - First time buyers are in an excellent position, regardless of the uncertainty in the market.
Regardless of the effects of Brexit on house prices, various sources suggest that the UK property market is overdue for a price correction - Brexit may just be the final hurdle before the price correction.
For investors, this is obviously not the best scenario. However, for first time buyers, who are struggling to raise an initial deposit for a property, a correction will prove extremely beneficial; Therefore, if you're a first time buyer, it may be beneficial to wait until late February/March to make a move, as you may achieve a better deal.
Over & under-estimations
Since the referendum in 2016, house prices in every major city have risen.
A study conducted by Good Move questioned 2000 individuals regarding their view on the impact of Brexit and house prices.
The findings concluded that;
- 32% believed Brexit had caused house prices to drop in their local area.
- 74% underestimated the amount house prices have risen in their local area.
Could this be down to the negative pictures mainstream media paint of the situation?
Section 3 - Predictions
This section highlights predictions from industry experts & our view of potential house price changes post Brexit.
Experts Predictions - The UK Property Market Post Brexit
As stated at the beginning of the article, no one can truly predict what will happen after an event, however the majority of industry professionals are expecting a similar outcome by the end of 2019 - a rising property market.
Update Jan 2020 - As you can see from the 2019 predictions, Burrell, Galley & Donnell were the most accurate predictions.
We've recently added some 2020 predictions of house prices after Brexit, which can be found below the 2019 table.
2019 Predictions -
+1% in 2019.
+2-4% during 2019.
Over-valued by 12%
Overseas buyers to invest in prime areas and property in London
+3% for 2019.
Possible -35% over three years post Brexit.
However likely scenario +1-2% in 2019.
2020 predictions -
+2% in 2020.
+2 to 3% in 2020.
-2% in 2020.
+1 to 3% in 2020
+1.5% in 2020.
+2% in 2020.
While the 2019 predictions were fairly accurate, we'll reiterate that predictions are still just... predictions..
You shouldn't base your decisions on these predictions and should plan for both best and worst case scenarios.
Our View on House Prices After Brexit
In our view, we do believe that Brexit is causing the property market to slow down due to buyers, developers and sellers holding off on any decisions until after Brexit, which is expected.
However, we completely disagree with the position that mainstream media is taking of Brexit being all doom and gloom that will cause a property market crash.
Our views are aligned with a selection of others in the industry;
Yes, the market is slowing down, yet we believe it won't result in a reversal of property prices - once all the Brexit dust has settled and investors have a clear picture of the situation, the property market will then carry on to rise.
The Brexit situation is definitely not comparable to the market crash of 2008. Since 2008, obtaining a mortgage has had far stricter criteria set out by banks and lenders alike so as to avoid another market crash.
| All property fundamentals remain more or less the same as before the Brexit vote;
There is still a high number of buyers in the market and an insufficient number of properties to suit the demand - this should indicate that UK house prices will not fall after Brexit, but instead will continue to rise.
Due to this, there is no reason to believe that there will be a property market reversal post Brexit - Buyers, sellers and developers will all get back to normal without having to ponder on what Brexit may do to the market.
We expect that both buyers & sellers are becoming frustrated with waiting for a Brexit deal and will soon continue with their intentions of buying/selling. This will in turn prop up the market and prices will again continue to rise.
Could there be a price correction in the property market post Brexit?
Yes, possibly. Markets continually fluctuate due to a wide array of inputs.
While many attribute the market slowdown over 2019 to Brexit, others suggest that the slowdown is simply the initial stages of a market correction.
However, don't confuse a correction with a crash. A correction is a perfectly normal scenario, where prices have been rising for a prolonged period of time and are simply "correcting" to their equilibrium value.
Some factors can increase the probability of a correction, such as mortgage rate hikes, extreme market uncertainty and financial issues.
Just because we've highlighted numerous factors that point toward price increases, post Brexit, we could still be faced with a small house price correction, which will then again lead to a further increase in prices - so be prepared for both scenarios.
Mainstream Media Negativity
Although the media paint a negative doom and gloom picture of Brexit on the economy and property market, they should not be taken as gospel.
For example, they completely twisted Mark Carney's words - he had stated the complete worst case scenario, which is an unlikely scenario to play out, yet the media portrayed his statement as a prediction. Media scare-mongering at work.
Mainstream media companies love situations which will create a great headline with a catching story. A simple decrease in property turnover in a few months to them will read something like "Property market set to tumble post Brexit".
Not only do these types of articles create unnecessary panic to those not well informed about the property market, but even if we do see a small initial decrease in property prices post Brexit (as is fairly common from time-to-time), the media are likely to hype it up to the point that prices are directly affected by their scaremongering and start to drastically fall when they shouldn't do.
Also, we hate to say it, but we told you so! We said in March 2019, don't listen to the negativity of large media who scare-monger, who spin property professionals words and who are ill-informed of true property investing fundamentals. In their view from 2019, by now we'd be struggling through a house market crash!
Main Points to Take Away
- There is still confidence in the property market - it has just slowed down while everyone waits for the outcome of Brexit to determine where they stand.
- It is not all doom and gloom like the media would like you to believe. There is no reason to believe the market will fail - Fundamentals remain the same.
- If you want to buy a personal residential property, don't be put off by Brexit. Prices have had an upward trend in general for the last 100 years and there's nothing to say that property prices won't carry on rising post Brexit.
- Similar to above, if you're looking at investing in property, again, don't be put off by Brexit. Many investors see this current period as an ideal time to invest, especially in the capital since property prices have decreased slightly.
- As 2019 drew to a close, the UK property market was up by 1.4% on average, with some areas up as much as 2.8%. It was London and the surrounding areas which experienced a drop in prices.
- Buyers & Sellers will soon start on their planned transactions due to the frustrations of waiting so long for a Brexit deal, which will kickstart the market into its usual trend.
- No, there will not be property market crash after Brexit. There is no reason to believe that this will happen. A price correction is however a possibility.
- Once the exit deal has been decided, the actual transition of Brexit will soon come and go and everyone will be wondering what all the hysteria and fear surrounding the whole event was about.
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