In this post from Restumping Melbourne, we take a look at the impact Brexit is having on the UK property market.
With British house prices nosediving recently, it’s clear that the uncertainty surrounding Brexit is negatively impacting the property market. Earlier this week, the third extension to article 50 was granted, giving Britain the new deadline of 31st January 2020 to reach an agreement with the EU. Given that the situation is likely to drag out for a while, it’s only natural to expect that the continued instability will have a knock-on effect on house prices across the UK.
Repeated Extensions to Article 50
Back in May of this year, Lucian Cook, head of residential research at Savills stated that buyers were adopting a ‘wait and see’ approach until the conclusion of Brexit became clearer. His research suggested that the market was being driven by buyer sentiment and that the previous October 31st extension had led to the recent drop in sales.
Following on from this, it can be expected that the latest extension will cause further stagnation and decline within the market, especially in London, which has been harder hit than the rest of Britain when it comes to the falling market.
However, the more pressing issue at hand is the ultimate impact that the final Brexit outcome will have on the UK property market.
A No-Deal Brexit
The consequences of a no-deal Brexit would be far-reaching across the British economy. KPMG predict that house prices will fall by 6% across the UK if an agreement cannot be reached with the EU, and if historic precedents are taken into account, this could stretch to a drop of up to 20%. This prospect could potentially drive buyers into further retreat as the possibility of negative equity hangs over the market.
In the event of a no-deal Brexit, we could see the government scrambling to mitigate the damage and avoid a housing crisis. This could be done in several ways, such as reducing stamp duty or interest rates. However, just how far they will let the situation go, and what countermeasures they will eventually take to ease the burden can only be speculated at this stage.
A Deal with the EU
The good news is that most MPs are strongly in favour of doing a deal with the EU. If this happens, consumer confidence will rise, leading to a revival of the market. A return to growth can also be expected, however, Mr Cook warns that this is “unlikely to be sustained”, as the initial bounce-back fades and purchasers realise that the UK’s relationship with the EU will still take time to resolve.
Added to this is the pressure that the recurring extensions are putting on the market. With consumer confidence at an all-time low, the longer the uncertainty lasts, the harder it will be for prices to recover if a deal is struck. It is possible that in this scenario, the government will also have to offer incentives to buyers to boost confidence and set the property market back in forward motion.