Are house prices likely to go up or down as Brexit negotiations get underway?
As Britain begins the enormous task of negotiating its exit from the EU, many are questioning what will be the effects on the property market.
One year on from the Referendum, Article 50 has been triggered and we’ve had another general election. It is still impossible to foresee the long-term impact of the Brexit vote, but it could be that the effects on the general economy are likely to be gradual rather than seismic.
As for house prices, it would be a brave expert to make long-term predictions at this stage following the recent election which brought yet more political uncertainty with a hung parliament.
‘Losing momentum’
Reports such as those from Nationwide released on June 1, have suggested that the housing market is losing momentum as it was revealed UK house prices fell for the third consecutive month in May. The price of the average home in the UK fell 0.2 per cent between April and May to £208,711, a smaller drop from the previous month when prices fell by 0.4 per cent, according to the building society’s price index. Average prices still increased by just over £4,300 compared to a year ago, but the pace of growth eased to 2.1 per cent from 2.6 per cent, the slowest in almost four years.
Nationwide chief economist Robert Gardner said: “House prices recorded their third consecutive monthly fall in May – the first time this has occurred since 2009.
“The annual rate of growth slowed to 2.1 per cent, the weakest in almost four years.
“It is still early days, but this provides further evidence that the housing market is losing momentum.
“Moreover, this may be indicative of a wider slowdown in the household sector, though data continues to send mixed signals in this regard.”
Given the data from Nationwide and that from other surveys, it is possible the Referendum result has brought about a lack of buyer/seller confidence. But whether it is solely down to the outcome for Brexit or not is another matter.
Following changes to Stamp Duty announced in 2014, some estate agents and analysts suggested the upper end of the London market was starting to stall. The price changes created a new banding system for the tax which put up the cost of stamp duty for anybody buying a house worth more than £937,500. The buyer of a £2million home now pays tens of thousands in extra duty. Some analysts say the number of £5million properties being sold is down by 65% compared to 2014. In addition, the 3% Stamp Duty surcharge for second homeowners, higher taxes for landlords and stringent affordability tests may force prices down over time too. But where analysts have reached agreement is that the uncertainty caused by the Referendum has affected buyer and seller confidence. Lucian Cook, Director of Residential Research at Savills, said sellers may have to take a “leap of faith” that a meaningful reduction in their price expectations will lead to more interest among buyers.
Interest rates
For now, commentators are reserving their judgement to make house price predictions until Brexit negotiations are further down the line. However, in the meantime, the housing shortage means demand remains high and so house prices will most likely continue to grow, but perhaps at a slower rate.
Of course, nothing can be ruled out as impossible. But most experts are agreed that for a house price crash to occur, there would have to be a hike in interest rates and that doesn’t appear to be on the horizon. Mr Cook said the triggering of Article 50 “may well make the Bank of England reluctant to increase interest rates, despite the recent increase in inflation. This will preserve affordability and points to a low turnover market, with little upward or downward pressure on prices.”
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