In a post-Brexit environment what happens next?
Sebastian Murphy (pictured left) is head of mortgage finance and Rory Joseph (pictured right) is director at JLM Mortgage Services.
A lot of things are changing in our society and, according to a recent research briefing from Oxford Economics, one of them may be the nation’s ‘obsession with house prices’.
We don’t have to go too far back in time to remember a period when house price inflation seemed to dominate our market’s discourse, at least within the tabloid print where headlines abounded on this topic. Whether it was house prices being out of control, or house prices being about to collapse, barely a week went by when the Daily Express (and others) didn’t proclaim one way or the other, or sometimes both.
Now of course we find ourselves in a rather different position. The double-digit increases of yester-year appear to be firmly in the past, but the bigger question of course is, in a post-Brexit environment, what happens next? Let’s be in no doubt, that some of the worst-case scenario predictions about the economy post-Brexit, have centered on significant house price falls.
The Bank of England, for example, has already talked about double-digit drops in prices as a principle result of a no-deal Brexit. This was always going to prick up the years of (quite frankly) most people in the country.
Of course, who can truly say where house prices might go in any post-Brexit situation, but it doesn’t seem beyond the realms to suggest that – as for most areas of our economy – leaving with a deal would be better than not. Indeed, we suspect there will be many stakeholders right across our industry, who will be hoping that prices never have to be tested in a no-deal situation.
That said, there is also a strong argument to suggest that the predictions made by the Bank of England, and others, have actually already happened. Take London as a market, for example, there have already been 20-30% drops in prices there – we have clients who are rather bitter that houses in their locale, which may have sold for £1.5m in 2016, now have agents suggesting they go on the market for £1m.
The lenders we speak to – and indeed, our own view – is that any certainty about Brexit and what comes next, may actually ‘reward’ the market with a significant increase in transaction levels, which ultimately may lead to a spike in house prices. Let’s not underestimate the number of potential purchasers/sellers who have simply been sitting on their hands throughout this whole Brexit negotiation, because they don’t wish to be moving/buying/selling in an uncertain environment.
If you take away the problem which is causing such market apathy – and I think we all recognise that this is way beyond getting out of the EU with or without a deal, but it’s a start – then you might well create a more positive environment which, coupled with the continuing supply-side issues that we have, ultimately results in prices going up.
In fact, if you take the idea that the house price correction has already happened across many areas in the UK, then you also make the argument for a greater level of equilibrium being achieved in the market. So, while prices have fallen in areas like London and the South East, that’s certainly not been the case in areas further North where prices have (at worst) remained stable and are more likely to have gone up than fallen. Having a market which seems more balanced is, in our opinion, a good thing, and certainly makes those areas more attractive to the likes of property investors.
Lenders too, appear to have already factored in the price changes that have already occurred, and seem far more positive about the future than other commentators might be. Why else would they be increasing LTV levels and increasing the maximum loan sizes available, unless they considered that valuers are going out, pricing correctly, and that they believe there is a strong chance of prices moving upwards in the months and years post-Brexit?
And indeed, if you look overall at the situation facing first-time buyers in particular, it’s hard to argue against any decision to buy at present, given all the schemes and benefits in their favour, such as no stamp duty, very low interest rates, and (we would predict) a house price environment which will move upwards in the years ahead. That being the case, we can also expect foreign investors to make their moves, after the EU decision is made – in fact, you might wonder why with the exchange rate and pricing (particularly in the capital) as it is, they’ve not made their moves before now.
It all makes the situation for advisers and their clients a little more knowable and perhaps encourages those who want to buy, to go ahead and do it, even if that post-Brexit future still seems unknowable. Of course, advisers are in a perfect position to provide this level of detail and advice – you should certainly be pricing that into your services, especially for those completely new to the process.