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What will Brexit mean for house prices?

Expert house price predictions for the post-Brexit transition period and beyond

What will Brexit mean for house prices?

As the clock ticks down towards the end of the Brexit transition period, the property market is continuing its resurgence after the COVID-19 lockdown. 

At the start of this year, Brexit jitters posed the biggest threat to house price stability, with the possibility of changes to the Bank of England base rate and no-deal after the Brexit transition period bringing uncertainty to the market.

But then the COVID-19 outbreak happened, bringing about two emergency cuts to the base rate in the space of eight days in March, as well as a seven-week shutdown of the property market.

The government’s move to temporarily cut stamp duty has brought the market back to life, but with uncertainty lingering over both the pandemic and Brexit, could this boost be short-lived?

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, plus predictions for the coming months.


 

What’s happened to house prices since the Brexit vote?

House prices stagnated for a while following the referendum in June 2016, as you’ll see in the chart below. However, that was fairly normal for the time of year: prices generally grow in spring and plateau over the following few months, a pattern that was repeated in 2017.

In late 2018 and early 2019, prices began to fall quite quickly as economic uncertainty around Brexit continued, before rising steadily over the months leading up to the general election in December.

The COVID-19 outbreak means this year’s data is a little less robust, with the Land Registry only now catching up after pausing its house price reports during the lockdown.

With fewer transactions going through than in a normal year, we might expect to see greater volatility in prices, but since the lockdown we’ve actually seen a pattern of steady price growth as buyers returned to the market.

This rise in prices is likely to continue in the short term, as the impact of increased demand following the stamp duty cut begins to show over the next few months.

Average UK house prices

Are house prices rising?

Looking at year-on-year house price change over the longer term can be a useful way of understanding what the market’s doing.

The chart below shows the annual rate of change each year since 2014.

Year-on-year house price change before and after the EU referendum (%)

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 fast approaching, the rate of growth had slowed across the board to a UK average of 1.01%.

The most recent data (for June 2020) shows annual house price changes have now settled at around 3% across the UK.

This complex picture shows how difficult it is to draw a direct link between Brexit and house price activity.

Transaction volumes since the referendum

Another way to judge 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. In early 2019, however, transactions were quite sharply down compared to the same months in 2018, before settling at just under 100,000 per month for the rest of the year.

This year’s figures have been heavily influenced by the COVID-19 outbreak and the resulting market shutdown, which saw sales drop to just 40,000 in April.

There are now signs, however, that numbers are rising, with the most up-to-date information showing around 80,000 transactions in August as the market continues to recover.

(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.)

Housing transactions before and after the EU referendum

What’s the market like for sellers?

A commonly used measure of how the market is performing for sellers is how long homes are taking to secure a buyer after being put on the market.

The chart below, which uses data from Rightmove, shows that properties have generally been taking longer to sell since the referendum in 2016.

It takes longer to find a buyer at the start of each year. In January 2019 it took an average of 77 days – the highest figure recorded since the referendum.

This year’s data has been heavily influenced by the market shutdown, but the immediate impact of July’s stamp duty cut is now being seen. In July, properties took 66 days to sell, but that figure fell to just 53 days in August – the fewest since May 2016.

Average days to agree a sale

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 this year and once the transition period is over.

The mortgage broker: ‘Buyers remain confident and are taking advantage of low mortgage rates’

David Hollingworth, associate director of communications at L&C mortgages, says: ‘The early part of this year saw a busy market, potentially driven by those who had been taking a wait-and-see approach feeling that it was time to take action.

‘It’s impossible to completely dissociate the point of leaving the EU, and any ongoing uncertainty it could generate, from the ongoing pandemic.

‘Since the market reopened there has been extremely high demand, so it’s difficult to point to confidence being hit. The stamp duty holiday will have helped drive activity, so questions remain over what happens after March [when the stamp duty holiday is set to end], and with the [end of the transition period] still to come, whether activity could begin to ease in the New Year.

‘Mortgage rates remain competitive, and this will help boost borrower affordability and confidence. However, there remains limited mortgage availability for those with smaller deposits. That is borne out by the current capacity issues, mixed with a degree of lender caution around how the economy will emerge from the impact of the pandemic.

‘If the market demand continues as it is and we begin to see restrictions ease there’s little to suggest that prices will be hit, but the recovery from the pandemic carries an uncertain outlook and any disruption from Brexit could still add to that uncertainty.

‘Overall, home buyers have been showing that they remain confident enough to move during a pandemic and to take advantage of low mortgage rates. They can also fix those rates in order to protect against any potential future fluctuation and many have taken the opportunity to lock into low rates now.’

The estate agent: ‘We hope the government keeps prioritising housing’

Mark Hayward, chief executive of NAEA Propertymark, says: ‘While Brexit continues to add another layer of uncertainty to the housing market alongside COVID-19, we are optimistic that housing has taken a priority in recent months.

‘The stamp duty holiday has provided much-needed affordability and relaxed a punitive financial tax on home movers, with our recent August Housing Market Report figures showing the highest number of sales agreed per estate agent branch in August for 13 years.

‘We hope that this prioritisation of the housing market continues after the stamp duty holiday deadline, and that the government keeps housing as a key discussion point in ongoing Brexit discussions.’

The property pundit: ‘People have decided that putting a roof over their head is more important than the price they pay for it’

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says: ‘It’s difficult to see how anything will affect the market in the short term, whether it’s Brexit or COVID-19. This is mainly because people have decided that putting a roof over their head that they love is more important than the price they pay for it or what it might be worth in the future.

‘The current demand which is pushing up prices by 2-3% is partly driven by sales previously being put off – partly due to the fear of Brexit – while others are being brought forward due to people being unhappy during lockdown or the stamp duty savings.

‘I think the market will remain busy until the end of October, but then people may hold off looking until January. Sales are likely to then pick up to the end of March and although some pre-Christmas bargains may be available, prices will probably remain relatively stable during this time.

‘At some point in 2021, this demand will come to an end and the number of transactions is likely to drop, which typically causes prices to fall too. Some properties are likely to remain in high demand but short supply, so they may not see falls at all, while others, for example where hospitality and entertainment are big economic drivers, may drop in value by up to 20%.

‘So although Brexit has had an influence on people’s decisions in the past, I think that due to COVID-19, we may see a continued change of attitude to property, with people more keen to buy when it’s right for them, rather than when the market suggests it’s a good or bad time to buy – but only time will tell.’

The buy-to-let expert: ‘Brexit could pose additional risks for landlords’

Chris Norris, director of policy and practice at the National Residential Landlords Association (NRLA), says: ‘I think it’s fair to say that most landlords have given little if any consideration to the impact that the next stages of Brexit will have on their lettings businesses over recent months, given the immediate challenges presented by the pandemic response.

‘However, it certainly hasn’t gone away and could pose additional risks for landlords operating in a very uncertain market at present.

‘The issues haven’t really changed throughout 2020. There is still not a great deal of information about what status EU citizens will have in respect of their right to rent in the UK once the transition period expires.

‘This means landlords with existing EU citizen tenants and those who tend to cater to seasonal migrant workers are unsure about what they need to do to comply with their obligations. Likewise, if EU nationals have their freedom of movement into the UK restricted, some landlords may face a difficult time finding tenants.

‘The end of the transition period may have an impact on housing demand. If fewer EU nations see the UK as an attractive place to live this may reduce demand at the margins of some markets. Additionally, if it increases market uncertainty some investors may turn to “safer” bricks and mortar for their investment.

‘Overall, it is likely to be very difficult to differentiate the effect of the pandemic response and the resultant economic downturn from the ramifications of the UK’s new relationship with the EU, whatever form that may take.’

The housebuilder: ‘There are some uncertainties ahead’

Stewart Baseley, executive chairman of the Home Builders Federation, says: ‘The new-build market has come back extremely strongly since lockdown. However, there are clearly some uncertainties ahead in terms of the economy and resultant consumer confidence as a result of the impact of coronavirus and Brexit.

‘The replacement Help to Buy scheme is very welcome, as the existing scheme has played a major part in the doubling in supply we have seen in recent years.

‘It remains to be seen what impact the new scheme’s rules, in particular the regional price caps, will have on take up.

‘We continue to work with government in a range of policy areas, including the recruitment of skilled overseas labour, with a view to ensuring they allow the industry to deliver on the Government’s commitment to increase housing supply.’

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. Additional reporting by Stephen Maunder.

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