With recent economic and political uncertainty, the general consensus in the UK property market has been a widespread feeling of nervousness. This is evident in data from property website Rightmove, finding that the number of properties for sale entering the market was down by 7.8% in September 2019. The worries are justified, as earlier this year it was reported that UK house prices were on the brink of a massive 40% collapse. The EU referendum in 2016 left a large cloud of uncertainty hanging over the UK economy. In the last three years, as different deals have continued to be placed on the table, it has been hard for experts to predict the effects Brexit will have on property prices, and the UK housing market in general. The upcoming general election makes this no easier as each party offers an entirely different take on the departure from the EU.
With mixed statements from economists and exaggerated headlines in the media, there’s no wonder property owners are worried about the future of their most valuable asset. However, property-buying firm Good Move in its survey of over 2,000 people, found that three-quarters of us are overestimating the impact that Brexit has had on house prices so far. So, what are the facts about the current state of the UK housing market? And what are the experts really saying? This article explores all the evidence without jumping to conclusions, and it surprisingly points to a mixed picture.
Worries about a no-deal Brexit
Brexit has led the worries about UK house prices and much of the media speculation about a crash in the UK housing market. Boris Johnson and his “no-deal Brexit” proposal put forward earlier this year caused much alarm. Economists were reporting that in the case of a no-deal Brexit, house prices would crash by at least 10%. This crash would take place over the year that followed a no-deal Brexit, and would continue to have a knock-on effect until 2022 when prices would begin to rise again. This has been one of the more pessimistic predictions; however, if the case for a no-deal Brexit was to continue after the general election, organisations will be expecting a substantial decline.
Do experts predict a UK housing market crash?
With so much Brexit uncertainty ahead of us, experts have been led to believe that we could be on the brink of the worst house price collapse since the 1990s. During the 1990s financial crisis, house prices fell by over 40% over a period of six years. Are these experts correct, and could we be on the brink of a 40% collapse?
Currently, on average, house price growth is at its slowest pace in seven years and estate agents have reported little increase in demand. Although this might be good news for first-time buyers hoping to make their step onto the housing ladder, it will be bad news for UK banks, vulnerable UK consumers and the economy. In particular, two leading economists have warned of the potential for a property crash. This crash will not only be triggered by Brexit, but also wages failing to keep up with inflation. This trend has already begun in London with prices falling and values weakening. Reports in May showed that over 75% of houses in London sold for less than asking price. Experts have predicted that this trend will fan out to the rest of the country, as is often the trend with the housing market. Although the crash is not expected to be a sharp plunge, it is still expected to slow growth and eventually lead to a severe downturn.
Are we in the middle of one of the longest property crashes in history?
Some experts are saying that we are already in the middle of one of the longest property market crashes in history. At first, this seems like a severe exaggeration. We haven’t noticed mass repossession or vast amounts of properties going to auction, so how can it be true? However, evidence shows that we are currently in the middle of a slump in house prices that has lasted longer than the slump of the early 1990s. Despite this fact, sellers should note that the crash prices are not actually reflected evenly across the country, or even across cities.
Much of this evidence comes from the Prime Central London market. The Prime Central London market has been a place of international investment, with prices driven by exchange rates and asset prices as opposed to people needing a place to live. The turning point came when George Osborne brought in stamp duty. This was designed to prevent international speculators monopolising London’s prime housing stock. Although this has impacted the Prime Central London market, the rest of the UK housing market continues to be driven by interest rates, job security and availability of credit. This doesn’t mean the housing market will be protected from this current slump, but rather there is no direct and influential relationship between the Prime Central London market and the rest of the UK.
Should sellers be worried about the weakening of the market?
Despite evidence for lessening in house price growth and a downturn in average prices, not all experts are so worried. An ex-consultant to the Bank of England has stated that there should be less worry about the recent weakening of the housing market. He explained that it was highly unlikely that prices will crash to such a level to match people’s stalling incomes, and there is very little chance of prices ever going back to where they were in the 1970s and 1980s. He said that it is far more plausible that prices will stay as expensive as they currently are, or they could even rise further. Of course, this is only good news for property owners, banks and the economy, rather than prospective buyers.
Furthermore, Miles Shipside, Rightmove director, has noted evidence of a more challenging and competitive housing market. The Rightmove director has advised sellers to be bold and aggressive when pricing their property, and in turn, their confidence amongst the hesitancy of others will attract the attention of buyers.
Despite current trends of slipping prices in some areas of London, evidence from the rest of the country really paints a mixed picture. Since the EU referendum, prices have indeed halted in some areas of the country, but in others, they have continued to soar ahead. Data has shown overall that house prices grew by 1.3% in the year to August 2019, this is up by 0.8% since July 2019. This looks positive when compared to a 0.3% rise during the same period a year earlier in 2018.
As much as the threats of Brexit have been hyped up by the media and contrasting evidence and advice promotes a more positive outlook, warnings should still not be ignored by sellers. Election uncertainty means we can’t possibly know what the true effects of Brexit will be, and the potential effects should not be exaggerated. A common reaction from Britons has been to put off selling or buying in this time of Brexit uncertainty. However, the warnings of a potential crash and prices falling means that it could be better to sell now rather than later. As Brexit continues to be postponed further, buyers might want to test the waters and make the most of the time now.
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