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What will Brexit mean for house prices?

Expert house price predictions for before Brexit and beyond

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, are causing property market jitters.

The general election on 12 December saw the Conservative Party gain a majority, with Prime Minister Boris Johnson saying that the public had given his party a ‘powerful mandate to get Brexit done’.

But with uncertainty remaining over when the process will be finalised, it’s impossible to predict the potential knock-on effect for property prices and the sector as a whole in 2020.

A survey of over 2,000 people by property-buying firm Good Move found that three-quarters of Brits overestimate the impact that Brexit has had on house prices so far. So what’s really going on?

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’s happened so far and predictions for the coming months.

What could a base rate cut mean for the property market?

The economic uncertainty caused by Brexit has undoubtedly affected the market, with house prices falling in some areas and fewer sales having taken place so far this year compared to the same time last year.

To add to the confusion, a base rate cut is looking more likely following the most recent vote by the Monetary Policy Committee, in which two out of nine members voted for a decrease.

Question marks over what this could mean for mortgage rates are making decisions even tougher for those weighing up whether to move house or remortgage.

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

While many MPs are strongly opposed to it, a no-deal Brexit remains the default position if the government can’t get its deal through parliament.

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 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.

The good news if you’re a homeowner is that prices have generally recovered over the last few months, with September 2019 (£234,370) only taking a slight dip against August, which saw the highest average house price on our chart at £234,853.

As you can see in the graph, it’s normal for prices to peak in August before falling slightly from September, 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, plus September 2019 (the most recent data available at time of publishing):

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.

By June 2019, with Brexit supposedly fast approaching, the rate of growth had slowed across the board to a UK average of 1.01%. However, by September this had picked up slightly to 1.26% despite the fact that, at that point, Boris Johnson was promising that Brexit would take place on 31 October.

This shows how difficult it is to draw a direct link between Brexit and house price activity: it’s impossible to accurately state the extent to which Brexit has influenced the figures. And some 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.

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

Earlier this year, however, transactions were quite sharply down compared to the same months in 2018. But activity has improved recently, with provision figures for October showing a slight uptick in sales (113,610) compared to 2018 (109,020).

(The spike you can see in the graph below was caused by investors rushing to complete their purchases before the 3% buy-to-let stamp duty surcharge came into force in April 2016.)

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, which uses data from the Rightmove house price index, 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 did fall again after that, with selling time then increasing in October to 64 days. An increase through autumn is normal, but this is still slower than in previous years. Many commentators believe this is due to nervousness around buying a home in the run-up to the election and a potential Brexit.

Stock per branch is only slightly up year-on-year, from 52 in October 2018 to 53 in October 2019.

This could be indicative of seller frustration, with data agency TwentyCi pointing to 801,000 homes having been withdrawn from the market in the year up to the end of September 2019.

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.

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

David Blake, mortgage expert at On The Money, 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 during this 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: ‘There could be a Brexit bounce in early 2020’

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says: ‘One of the things that has held the market back over the last 12 months is the uncertainty of Brexit and latterly the election.

‘Now both of these questions are settled and as people have ‘hung on’ for some time, it is likely there will be a bit of a Brexit bounce in activity at the start of 2020. As a result I would expect more people to put properties up for sale and more buyers coming into the market.

‘In some areas this may result in a short term rise in prices as people compete for quality properties in good locations which are likely to still remain in short supply.

‘Most are predicting small rises year-on-year in 2020, but I expect the rises will come at the start of the year and then fall back as pent up demand subsides.

‘As always, buying a home is all about your own personal circumstances, and it is essential to seek advice from local agents about the market for an existing home and the one you are buying, rather than rely on averages in the media.

‘Getting good financial advice is also essential and as we are still in uncertain times, seeking help if prices do fall to protect the roof over your head is vital.’

The estate agent: ‘Brexit is undoubtedly causing uncertainty’

Mark Hayward, chief executive, NAEA Propertymark says: ‘Brexit is undoubtedly causing uncertainty in the housing market, which in turn affects sentiment and decision-making.

Once there’s clarity on 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.’

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 [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, while Boris Johnson’s victory last week might be music to the ears of those that want Brexit done and dusted, the uncertainty is not yet over. And aside from Brexit, landlords are concerned about what the next government’s plans will be for the private rented sector more broadly.

‘All factors together have caused landlord confidence to fall to an all-time low, and the government must take urgent action to deliver on its pre-election promise to strengthen landlords’ rights of possession by reforming the law courts if it is to stave off a crisis in the private rented sector.

‘On a day-to-day level, changes to immigration policy after Brexit 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 clarity about Help to Buy’

Stewart Baseley, executive chairman of the Home Builders Federation, says: ‘‘Unlike the wider housing market, where transactions have dropped considerably from the historical norm over recent years, the new-build market has remained relatively strong.

‘However, challenges have been starting to appear more recently at certain parts of the market and areas of the country.

‘The industry is reliant on consumer confidence, which requires a level of economic and political stability, and we must hope the new Government can address the political paralysis and uncertainties we have faced.

‘We urgently need to see confirmation on the terms of the new Help to Buy scheme running from 2021 to 2023. 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 still further 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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