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What will Brexit mean for house prices?

What will Brexit mean for house prices?

As the clock ticks down towards the end of the Brexit transition period, the property market is continuing its resurgence after the COVID-19 lockdown.

At the start of this year, Brexit jitters posed the biggest threat to house price stability, with the possibility of changes to the Bank of England base rate and no-deal after the Brexit transition period bringing uncertainty to the market.

But then the COVID-19 outbreak happened, bringing about two emergency cuts to the base rate in the space of eight days in March, as well as a seven-week shutdown of the property market.

The government’s move to temporarily cut stamp duty has brought the market back to life, but with uncertainty lingering over both the pandemic and Brexit, could this boost be short-lived?

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 economic uncertainty around Brexit continued, before rising steadily over the months leading up to the general election in December.

The COVID-19 outbreak means this year’s data is a little less robust, with the Land Registry only now catching up after pausing its house price reports during the lockdown.

With fewer transactions going through than in a normal year, we might expect to see greater volatility in prices, but since the lockdown, we’ve actually seen a pattern of steady price growth as buyers returned to the market.

This rise in prices is likely to continue in the short term, as the impact of increased demand following the stamp duty cut begins to show over the next few months.

Are house prices rising?

Analyst studies show that the rate of house 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, with Brexit fast approaching, the rate of growth slowed across the board to a UK average of 1.01%. The most recent data (for June 2020) shows annual house price changes have now settled at around 3% across the UK.

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

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 in 2018, before settling at just under 100,000 per month for the rest of the year.

This year’s figures have been heavily influenced by the COVID-19 outbreak and the resulting market shutdown, which saw sales drop to just 40,000 in April.

There are now signs, however, that numbers are rising, with the most up-to-date information showing around 80,000 transactions in August as the market continues to recover.

Brexit house price expectations

Despite four years of uncertainty, the future looks very bright for the UK property market once the Brexit transition period is over. Buyers remain confident and are taking advantage of low mortgage rates which will continue to drive price growth in the property market.

The early part of this year saw a busy market, potentially driven by those who had been taking a wait-and-see approach feeling that it was time to take action. It’s impossible to completely dissociate the point of leaving the EU, and any ongoing uncertainty it could generate, from the ongoing pandemic.

Since the market reopened there has been extremely high demand, so it’s difficult to point to confidence being hit. Mortgage rates remain competitive, and this will help boost borrower affordability and confidence.

However, right now there remains limited mortgage availability for those with smaller deposits, although this situation may well change in the near future. There is currently a degree of lender caution around how the economy will emerge from the impact of the pandemic. However, when the Covid mist clears, there are likely to be increasing attempts to stimulate the housing market with increased mortgage lending.

If the market demand continues as it is and we begin to see restrictions ease there’s little to suggest that property prices will be hit, but the recovery from the pandemic carries an uncertain outlook and any disruption from Brexit could still add to that uncertainty.

Overall, homebuyers 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 have taken the opportunity to lock into low rates now.