What Will Happen To House Prices After Brexit?
A lot of people have speculated about what will happen to house prices after Brexit. The uncertainty has had a dire affect on the housing market with fewer buyers, fewer sellers and sales taking longer to complete. Despite the smaller volumes of trade and slowed growth rate, house prices have largely remained the same with only Scotland showing a small fall in house prices in the months immediately running up to the first withdrawl deadline in March 1, 2 so why is the market so affected by the uncertainty over Brexit?
Stark Warnings About House Prices After Brexit Have Excited Buyers
There have been stark warnings from the Bank of England’s governor Mark Carney that house prices could fall by up to 30% from their pre Brexit level if there is no deal. He also said that is his job to plan for the worst case scenario suggesting that the pessimism is based on possibility rather than probability. While most industry experts do predict some sort of drop in price following a no deal Brexit, although there are also those who predict no change and those who predict slight increases 3.
Gauged by the reduced activity in the housing market it seems as though a significant number of buyers are delaying their plans to buy property until after Brexit due to the fear of negative equity if the property values drop significantly.
The buyers most tempted by the prospect of a drop in property costs are those who are not also selling during the same period – i.e. first time buyers, second home owners and buy to let landlords. They represent a significant percentage of the housing market buyers.
Will House Prices Drop After Brexit?
The simple answer is that nobody can know until a plan has been agreed and even then the extent of any affect on house prices after Brexit will also depend on a range of other economic factors including Secton 24, aka The Landlord’s Tax.
The following information gathers together some relevant factors and attempts a logical understanding of the situation. It is NOT intended as any sort of advice.
What Factors Could Affect House Prices After Brexit?
1. Inflation & Interest Rate Rises Could Affect House Prices After Brexit
The European Union (EU) is an economic and political collection of countries that have agreed to make trade between its member states easy by allowing goods, capital, services and people to move freely across the national borders of the member states as a single market.
If Britain Leaves The EU Without A Deal
If the UK leaves the EU without any agreements or attempts to maintain a trade agreement (no deal), import and export costs will rise due to the tariffs associated with trade as a non EU member and because of the added time required to complete the required legislation and custom procedures for non EU members. Farmers will lose their EU subsidies so the cost of producing food in Britain will also rise. 4, 5, 6
Inflation is the rate that the cost of goods and services is rising and, as a direct result of higher prices, the rate the value of the currency is falling. Interest rates are historically and logically linked to inflation 7. Inflation is predicted to rise in the event of no deal Brexit. 8.
A rise in UK interest rates following a no deal Brexit could affect house prices after Brexit in the following ways:
Some Landlords Will Have To Sell Their Rental Properties
Higher Tax Bills
Buy To Let landlords have historically been able to claim 100% relief on the cost of buying property against the income received through rent. Section 24 is a change to the rules that will see tax relief reduced from 100% to 0% (and replaced by a tax credit at the basic rate of tax which is currently 20%),over a four year period from 2017 to 2020 in 25% reductions.
An increase in interest rates will see landlords with mortgages or loans on their rental properties face higher costs at a time their income is reduced through higher taxation. Some landlords may find their costs (interest rates, maintenance, property management, legislation and tax) are higher than their rental income as the tax relief rate drops below 50% (April 2019 onward). 9, 10
The Risk of Negative Equity
The risk of house prices falling means landlords with no profit or even small losses can no longer confidently expect to profit from the growing equity in a property.
The Risk of A Stampede To Sell In The Event of No Deal Brexit
If the profit in buy to let rentals becomes smaller, the need to avoid empty properties and the financial drain from paying a mortgage with no rental income become bigger. If the rental market suddenly shrinks, it will be more difficult to avoid empty periods. Landlords could find themselves having to sell their properties fast to avoid paying mortgages on empty property or defaulting on mortgage repayments.
The Scale Of The Potential Stampede
According to Which? News data from The Ministry of Housing, Communities and Local Government (MHCLG) in Sept 2018 suggested over 4,000 landlords a month sold their rental properties in the preceding year reducing the number of rental properties by 46,000 in the preceding year. 11
Fewer First Time Buyers / More Repossessions
When the Bank of England raises interest rates mortgage providers normally increase the rate of borrowing (unless lenders have fixed rate mortgages) making mortgage repayments more expensive and more would be or existing buyers unable to meet the increased costs.
2. Reduced Demand For Housing Could Affect House Prices After Brexit
If the UK leaves the EU with ‘no deal’ people from member states currently living and working in Britain under the principles of a single market may lose the right to do so as might British people living and/or working in European countries lose their right to residence and free travel.
In June 2018 the estimated number of citizens from member states of the EU was estimated to be 3.7 million people (appx 6% of the UK population) 12 while 1.3 million people born in the UK live in other EU countries.13
EU nationals already residing in the UK can apply for settled and British people living abroad can apply for residency or other types of agreement depending on the country where they live. However after the withdrawal agreement, new EU nationals wishing to live and work in Britain will no longer be treated differently to people from Non-EEA regions. All immigrants will be subject to a skills-based immigration system.
Dealine To Apply
The deadline for applying for settled status is 30 June 2021, or 31 December 2020 if the UK leaves the EU without a deal. Applicants will need to submit information about themselves and all their family members (including children who may have been here all their lives). Anyone who has not applied or had an application made on their behalf before the deadline may be left without the right to remain in the UK. If is estimated that if only 5% of people do not apply, 200,000 people will lose their right to stay in the UK.14, 15
It is estimated that during the 25 years between 1991 – 2016, greater demand caused by immigration (from EU and non EU nationals) contributed up to 21% towards the 320% growth in house prices in England according to analysis by the MHCLG 16. It is not an irrefutable estimate as very few immigrant workers buy property in the UK however the effect is in part due to very wealthy migrants buying 2nd homes and investment properties.
Implications To The Rental Market
If the rights of EU citizens to live in the UK and the rights of British people to live in EU are affected by Brexit, theoretically there will be a decrease in the demand for housing which will further hit many landlords who currently rent to migrant workers.
The knock-on effect especially combined with other factors listed above that mean any period of empty buy to let properties is more of a financial liability could mean more landlords will need to sell their properties.
The sale of empty buy to let rental properties and migrant home owners’ properties may contribute to a decrease in house prices.
How Could The (Possible) Consequences Affect House Prices After Brexit?
A Stampede Of Sellers
If a significant number of landlords need to sell their rental properties as a result of higher interest rates, lower tax relief and/or less demand for rental properties after a no deal Brexit there could be a stampede of sellers needing to sell empty properties quickly. A stampede of sellers could create a “buyer’s market” which could see property prices drop as sellers compete for buyers in a flooded market.
A Stampede Of Buyers?
If inflation rises as the cost of living rises (as producers pass on their added costs from increased import/export taxes and delays) making mortgages less affordable and if Britain enters a recession as has already been predicted by some experts 17, the number of people in a position to buy property after a no deal Brexit is likely to be far less than the number of people who are in a position to buy before Brexit making a stampede of buyers less likely.
An unequal counter swing could stop house prices falling by 30% as in the worst case scenario considered by Mark Carney but, in theory at least, it should result in some drop in house prices after a no deal Brexit.
What Is The Scale of Buyers/Sellers Postponing Property Purchases Until After Brexit?
There may be other factors (such as the growth in previous years having out priced large numbers of buyers) but a logical measure of the scale of the postponing caused by uncertainty about house prices after Brexit is the reduction in volumes of people buying/selling compared to the same months in previous years.
Estate agents were the second fastest declining retail high street category during the first half of 2018, research published by the Local Data Company 18 in November 2018 revealed. It also cited uncertainty around Brexit as having a negative affect on consumer confidence within the sector.
Deal or No Deal?
The price of new-to-the market properties increased in March 2019 by their biggest month-on-month rise since 2016. Miles Shipside (Rightmove director and housing market analyst) reported it as Rightmove’s busiest ever month with over 145 million visits to the site 21 signalling that people may have lost patience with waiting to see what happens to house prices after Brexit.
Miles Shipside, Rightmove director and housing market analyst says: “No doubt there are still a lot of twists and turns to come, but this extension could give hesitating home movers encouragement that there is now a window of relative certainty in uncertain times. We are not anticipating an activity surge, but maybe a wave of relief that releases some pent-up demand to take advantage of static property prices and cheap fixed-rate mortgages. This demand is clearly there as March was Rightmove’s busiest ever month with over 145 million visits to the site.”
Looking At The Risks and Advantages From A Different Angle
Instead of looking at what might happen, it might be easier to look at what is unlikely to happen – e.g. it is widely agreed that house price might stay roughly the same or go down after Brexit (if it happens).
What is clear; no one seems to be predicting is that house prices will rise dramatically in the near future, whatever the outcome of Brexit.
If House Prices Stay Roughly After Brexit
Sellers who are currently delaying selling their properties due to Brexit, could be taking a relatively large risk for relatively small benefit (house prices aren’t likely to rise significantly but could fall by a large amount), especially if they are buy to let landlords who might find themselves financing empty properties in a buyers’ market with reduced number of buyers.
Buyers who are currently delaying buying property in the hope that property prices will fall dramatically may gain less than expected and may even be negated by a rise in the base rate of fixed price mortgages plus the cost of renting for longer than necessary.
The biggest winners in the event of a no deal Brexit are most likely to be investment buyers who do not need a loan to finance the purchase. If the value of the pound also weakens as a result of no deal Brexit, they could be particularly appealing to overseas investors who will be able to buy more with their currency.*
*NB. As previously stated, any conclusions drawn or suggestions made in this article are personal opinion and should not be mistaken for any type of advice or prediction. Brexit may or may not happen and if it does, the outcome cannot be predicted until a deal is agreed, first by parliament then by the EU, or Britain leaves the EU with no deal on the 31st October 2019 (unless another extension is agreed).
How Sellers Can Increase The Likelihood of Completing A Property Sale Before The Postponed Brexit Withdrawal Deadline (And The Risky Uncertainty It Brings)
National Residential can help those would-be sellers who have postponed the sale of their property due to the complexity and fear surrounding house prices after Brexit by selling their property in our online, modern 28 days or less auctions (ahead of any post Brexit withdrawal delay rush to sell as sellers’ patience wears out and well short of the record breaking average timescales recorded in January 2019 of 77 days for a property to go under offer) .
Unlike traditional auctions, our online modern auctions close at a convenient time to ensure no buyers are excluded by inconvenient locations/timings. Our automated systems and consultants ensure every would-be buyer is engaged in the process to ensure we achieve the best price for your property. Sellers can set a reserve price to ensure they only sell for an amount they are happy to receive and can choose the most suitable offer between cash buyers and financed buyers. Buyers pay a non refundable deposit (which contributes towards the sale price) to secure their purchase and satisfy sellers that they will not withdraw their offer.
Sell Your House In A Timescale To Suit You
National Residential has a number of sales models and offers options that are not available from a traditional estate agents who do not secure sales by asking buyers to pay a holding deposit when their offer is accepted. Sellers can benefit from options such as a cash advance and/or help to rectify any problems that would otherwise limit the number of interested buyers – e.g. by fixing problems so that the property is mortgage-able and/or negotiating with tenants to move out together at a convenient schedule so that landlords can sell their properties with vacant possession with minimal interruption to rental income whilst being liable for mortgage repayments.
Find Out More
For an no obligation chat to discuss our sales options, our seller protection measures and what we can do to help you sell your home, inherited property or buy-to-let investment call us now on 01244 757152 (Mobile Friendly) or
0800 6123694 (Freephone). A receptionist will answer your queries as much as they can and take your phone number so one of consultants can phone you back to discuss estimates and offers. Alternatively, use the contact form to leave your name and number and a consultant will call you back as soon as possible.
You really have nothing to lose – all offers will be made in writing before we advertise any property and if we do not meet the agreed minimum sale price, sellers can refuse the highest offer. 28 days is all it will take to know exactly what we can do for you and if Brexit has taught us anything it’s that details matter.
For more information on our sales options please see We buy or sell your house quickly and for the best possible price!
1 House prices rise at slowest rate in six years as Brexit hits growth
2 What will Brexit mean for house prices
3 UK house prices: Will the value of your home change in 2019?
4 Brexit papers: What no deal could mean
5 EU’s Preparedness notices
6 What a no-deal Brexit will mean for road transport
7 What is the relation between interest rate and inflation?
8 What will Brexit mean for interest rates?
9 Section 24 – HRMC Tax Changes.
10 Taxes and red tape force ‘amateur’ landlords to sell up
11 Thousands of landlords are ditching buy-to-let: can you still make a profit?
12 Has there been a ‘Brexodus’ of EU citizens since the referendum?
13 Brits abroad: how many people from the UK live in other EU countries?
14 The Immigration Bill: An end to free movement
15 Brexit: Three ‘simple’ requirements for EU citizens to stay in UK
16 Have house prices risen because of immigrants?
17 No-deal Brexit would plunge UK economy into recession – OECD
18 Retail And Leisure Market Update
19 Negative trends in UK housing market hinge on Brexit
20 Market activity slips further (Nov 2018)