Matt Stevens is a Director with brokers The Mortgage Genie, and a father to two girls. He studied business management and Spanish linguistics at Northumbria University and University of Cadiz, and has been working in the financial industry for 8 years. In this post, Matt shares his thoughts on the question on everyone’s lips: how will Brexit affect the property market?
Whether you’re pro- or anti-EU, you have to admit that the current level of Brexit uncertainty is causing a few property market jitters. While house prices managed to remain more or less steady just after the referendum back in 2016, things are looking less rosy as we hurtle towards the departure date in March.
Uncertainty in the market always causes a drop in confidence, and the current climate has made both buyers and property developers more cautious. Confidence among EU nationals is very low, as people are still unsure what their rights will be post-Brexit, meaning that expats aren’t in a position to consider house hunting. We’ve certainly seen a decrease in the number of mortgage applications from this demographic, and I can only imagine this will increase in the event of a no-deal Brexit.
I would expect construction and development to slow, with market uncertainty, issues in the supply chain, and the possibility of a drop in house prices causing developers to scale back plans for new housing. Construction firms have been quick to blame Brexit for a rapidly growing skills gap and increasing material prices, and a no-deal could certainly cause these problems to escalate. Many firms that are mid-way through projects or were due to launch new housing sites next year are now extremely concerned that costs are on the rise, meaning that completion dates for these developments are looking less likely to be met. Delays to housing projects can cause knock-on delays to others in the chain, jeopardising many other agreed sales in the process.
While all this is certainly concerning, there’s only one question that really matters to most people: will house prices drop? With Bank of England governor Mark Carney warning that a no-deal could cause house prices to plunge by as much as 35% over three years after Brexit, many are bracing themselves for a drastic disruption to property values. In the event of a house price crash on this scale, it’s more than likely that mortgage rates would also spiral. When you combine this with the possibility of a drop in the value of the pound and rising inflation, this could leave many homeowners in negative equity, or locked out of cheap mortgage rates.
Carney is thought to have advised Downing Street directly on the possibility of such an outcome, lending real credibility to the idea of serious market disruption. Of course, it’s the role of the Bank of England to plan for the very worst-case scenario, so we may be right to take such dismal forecasts with a pinch of salt. And a no-deal outcome isn’t inevitable: it’s still possible that Theresa May will manage to scrape together just enough cross-party support to agree a new deal before March 29st.
None the less, I think we would be naïve to expect that a disorderly Brexit won’t cause at least some house prices to fall. Property sales have already shown signs of a slowdown, and a number of areas have reported an increase in average sale times, too.
Moving forward, I would certainly expect some volatility after Brexit: I’d also venture that areas with very high property values are the most likely to see a reduction in house prices, particularly in London.
While you’d need a crystal ball to say exactly what will happen later this year, I think homebuyers and housing sector professionals would be wise to prepare for long-term disruption to the market post-Brexit.
Matt Stevens
