Financial Planning

Brexit & Property Prices: What Will Happen?

Brexit & Property Prices: What Will Happen?

Are you think of buying a property, but not sure whether to wait in case Brexit produces a drop in house prices?

Alternatively, perhaps you were thinking about selling later in the year, but do not whether to bring the sale forward (before the UK leaves the EU)?

The question of the effect of Brexit on UK house prices is hot on house hunters’ lips. Political events are continually unfolding, and at the time of writing the UK is still yet to agree on a formal deal with EU over the terms of Britain’s departure on 29th March 2019.

Nobody knows, at present, whether the UK will leave the EU without a deal or with a deal. Of course, even with a formal deal agreed this is no guarantee that house prices will rise. If no deal is struck, then the impact on the property market will be subject to a wide range of factors which are hard to predict at this time.

In short, even if we currently had full knowledge of the type of Brexit that is approaching, nobody can say with any certainty what will happen to the property market.

With that said, there are some trends and industry predictions which you will likely want to consider if you are thinking about buying or selling.

What follows is for information purposes only, and should not be taken as financial advice. Speak with a professional mortgage adviser about your own financial goals and circumstances prior to making any big property decisions.

The state of the property market right now

According to research by PwC, house price growth was relatively stable in 2017 but moderated in early 2018. At the time of writing, their projection was that house prices would grow by around 3% each year until 2025. In other words, a house price of £221,000 (the average in 2017) would grow to £285,000 (i.e. £64,000) over the next 8 years.

In December 2018, however, house prices across the UK fell at the fastest rate in the past 6 years. In January 2019 house prices had fallen a further 2.9% on the previous month.

This follows a similar pattern seen over the past three years, where house prices have dropped as the new year starts. It is therefore important to put these kinds of figures in context. In 2018, for instance, house price growth remained essentially static at 0.8%. In January 2019, house annual house price growth had almost halted to 0.1% – the smallest rise since February 2013.

Undeniably, the picture at present is that the UK property market is jittery. Certainly, the rate of house price growth has decreased. However, it is worth noting that, across the UK, house prices themselves haven’t gone down – although in certain parts of the UK (notably London) the asking price of a home has decreased over each of the past six months.

Some argue that the slowdown in house price growth is due to the uncertainty created by Brexit, whilst others make the case that this is simply a market correction which is long overdue.

Looking at transaction volumes (i.e. the number of properties sold in a given month) can be helpful when gauging the health of the property market. Quite often, a reduced transaction volume suggests uncertainty in the market.

In December 2018, there were actually more property sales (102,330) than during the same month in the previous year (98,760).

Buying a property: Should I wait until Brexit is over?

So, what will 2019 hold for the UK property market in light of Brexit. As stated above, nobody really knows. Indeed, there is a wide range of predictions offered by a number of experts:

● 3% rise: Richard Donnell (Hometrack)
● 1-2% rise: Andrew Montlake (Coreco)
● 5% fall: Henry Pryor
● 1% rise: Andrew Burrell (Capital Economics)
● No change: Miles Shipside (Rightmove)
● No change: Simon Rubinsohn (Royal Institution of Chartered Surveyors)
● 2% to 4% rise: Russell Galley (Halifax)

Source: BBC

One thing most commentators agree on is that the growth or decline of house prices in 2019 will vary in different parts of the UK, and within neighbourhoods of the same town.

Another common piece of advice offered by experts (and we put our weight behind this too) is that consumers should not panic or make any rash buying/selling decisions.

Brexit might well be causing a lot of political uncertainty, but that does not mean you should simply jump onto the first fixed rate mortgage you find just for peace of mind. For instance, there are flexible options out there which could allow you to remortgage if rates later experience a significant change.

At present, a lot of property buyers are postponing purchases until the fog surrounding Brexit clears, perhaps hoping that prices will fall. Many sellers are also holding off until things become clearer after 29th March. This (along with the current shortage of properties) could prevent house prices from falling significantly in 2019, although it this cannot be anticipated with a high degree of certainty.

Of course, the important thing for buyers to remember is that for many people, buying a house is a long-term decision. It is true that you could buy a property right now and unfortunately see its value drop in the short-term, possibly due to market instability caused by Brexit. However, in the medium-long term when you eventually wanted to move the market should have corrected itself.

If you are looking to buy for the short-term, then things are not so straightforward. If a no-deal Brexit transpires, then interest rates could go up significantly (perhaps 6-7%). Again, this is not a certain outcome – but it is a possibility.

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