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What will Brexit mean for house prices?

Discover what the experts think will happen to house prices in 2021

What will Brexit mean for house prices?

With the UK having finally left the EU after a trade deal was agreed on Christmas Eve, we take a look at what’s happened to house prices since the referendum in 2016, and explain whether Brexit could continue to affect the property market this year.

Brexit jitters have long posed a threat to house price stability, with concern over whether a deal would be agreed and the prospect of changes in interest rates bringing uncertainty for buyers and sellers alike.

In 2020, this was exacerbated by the COVID-19 outbreak, which saw two cuts to the Bank of England base rate in the space of eight days, as well as a seven-week shutdown of the property market.

The government’s move to cut stamp duty in July 2020 brought the property market back to life, but questions remain over what will happen to house prices after the tax break ends on 31 March.

We’ve analysed the property market before and since the Brexit referendum and spoken to experts from the estate agency, mortgage and buy-to-let sectors to bring you the inside guide on what’s happened so far, as well as predictions for house prices in 2021.


 

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

House prices stagnated for a while following the referendum in June 2016. 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 uncertainty around Brexit continued, before rising steadily over the months leading up to the general election in December.

The COVID-19 outbreak brought a volatile time for the housing market in 2020, but the release of pent-up demand after the spring lockdown saw house prices rise, buoyed by the government’s temporary cut to stamp duty.

Average UK house prices

The graph below shows how house prices have changed since the referendum, using data from the Land Registry’s UK House Price Index.

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 in house prices each year since 2014.

As you can see, the rate of 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, 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 growth had settled at around 3% across the UK.

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

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 a year earlier, before settling at just under 100,000 per month for the rest of the year.

2020’s figures were heavily influenced by the COVID-19 outbreak, with the market shutdown resulting in just 40,000 transactions going through in April.

Since the re-opening of the market, however, transactions have been rising quickly. Sales recovered to normal levels in September, before breaking the 100,000 barrier in October as more buyers looked to take advantage of the stamp duty break.

(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

The graph below shows the number of house purchases (of more than £40,000) recorded in the past five years, using data from HM Revenue and Customs.

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.

The data for 2020 has been heavily influenced by the market shutdown, but the impact of the stamp duty cut is now being seen.

In July 2020, properties took 66 days to be marked ‘under offer’ or ‘sold subject to contract’, but that figure fell to just 49 days in November – the lowest recorded by Rightmove to date.

Brexit house price predictions: what do the experts think?

We’ve looked at what has 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 in 2021.

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

‘Since the market reopened after the initial lockdown, 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 it ends in March. If the end of the transition period has an impact on the broader economy it could affect activity, although a deal being reached should calm consumer sentiment. 

‘Mortgage rates remain competitive, and this will help boost borrower affordability and confidence. Availability has also been improving for those with smaller deposits in recent weeks, which will help too. 

‘If the 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 the 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 are taking the opportunity to lock into low rates now.’

The estate agent: ‘It’s vital that the property market is supported’

Mark Hayward, chief policy adviser at Propertymark, says: ‘Brexit continues to add another layer of uncertainty to the housing market alongside COVID-19, but as housing has been a priority in recent months, we remain optimistic.

‘The stamp duty holiday has provided much-needed affordability and relaxed a punitive financial tax on home movers, however, we continue to put pressure on government to extend the holiday as failure to do so could have unintended consequences on the housing market.

‘As we’re yet to the full impact of the Brexit deal on people’s lives, it’s vital that the property market is supported wherever possible through measures such as a stamp duty holiday extension.’

The property pundit: ‘It’s unlikely we will see much price inflation in 2021’

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says: ‘The demand which pushed up prices by 4% in 2020 was driven by people who were holding off from moving before the pandemic struck – partly due to the fear of Brexit’s impact on house prices. In the second part of 2020, demand was brought forward due to people being unhappy during lockdown or the stamp duty savings on offer.

‘For 2021, we are likely to see three main types of movers driving demand. The first will be those moving to a better home, with the desire still driven by lockdown experiences. The second will sadly be an increase in the 3 D’s – death, divorce and debt – driven by the awful consequences of the pandemic. Finally, there will be the pent-up demand from people who wanted to buy over the last year with a smaller deposit.

‘There may be a lull in activity in April and May if the stamp duty cut isn’t extended, but I believe there is enough demand for 2021 to deliver another good year for transactions. However, due to the boost in prices last year, its unlikely we will see much price inflation in 2021, and we may even see slight falls reported.

‘In truth, unless Brexit causes severe damage to our economy over the coming years, its unlikely it will impact on the property market.’

The buy-to-let expert: ‘The government must provide clear guidance 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 businesses over recent months given the immediate challenges presented by the pandemic. However, it certainly hasn’t gone away and could pose additional risks.

‘The issues didn’t really change throughout 2020. There is still little information about what status EU citizens will have in respect of their right to rent in the UK once the transition period expires. We know that until 30 June right to rent checks will continue in the same way as they do now for EU citizens, along with those from Switzerland, Norway, Iceland and Liechtenstein. However, we are still no clearer about the longer-term.

This means that landlords with tenants who are EU citizens or 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. It is crucial though that the government publishes clear guidance for landlords as early as possible to ensure clarity for landlords and their 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.’

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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