Let’s find some Brexit positives

Mortgage Introducer

January 30, 2019

Richard Adams is managing director of Stonebridge Group

It’s not often you get to hear a fully-rounded view of the current state of the UK economy, the paths that might be followed by both the government and Bank of England, and what this all means for the housing market, but I and those delegates who attended Stonebridge’s recent Annual Conference got just that, when we heard from David Smith, economics editor of The Sunday Times.

David has a unique way of cutting through the noise that exists around all of the above but, as he himself pointed out to us, trying to make any concrete predictions about how Brexit might land, and its impact on the UK economy is pretty much impossible at the moment.

As I write this piece, MPs in the House of Commons are debating a series of amendments to the government’s Withdrawal Agreement – which you’ll remember brought about the biggest defeat for a government ever, but which still appears to be a ‘going concern’ and, if you’re to believe the Parliamentary gossips, could actually get enough votes next time should the Prime Minister be able to convince the EU to drop the Irish ‘backstop’. A big if, but it seems like the government is willing to kick the can down the road a little further, and this time it might garner enough support to be actually able to do this.

After all, what do we care? It’s not as if we’re all looking at the UK crashing out of the EU with ‘no deal’ on the 29th March, is it? That’s two months away and no wonder there is a heightened state of panic about what comes next, how the UK economy might react, will we have martial law, will we have shortages of food, and everything else that is currently being predicted. A large part of me can’t quite believe we have come to this point, and watching the documentary about the last 10 years of this country’s relationship with the EU, you couldn’t help but conclude that David Cameron has a lot to answer for.

But, anyway, can we find some positives amongst all of this? Well, David certainly thinks there could be some. For a start he anticipates that we will get a deal and that it will be a “very soft” version of Brexit, one with a very long transition period which goes way beyond what is currently being talked about, December 2020. He’s 70:30 that a deal will get through with an extension of Article 50, although points out that we still have to take these Commons’ votes back to the EU. Having said that, agreement appears to be more likely than not, although you can’t possibly rule out anything at present.

For the housing market – and those key areas that impact it most – what does David has to say? Well, he still believes it functions on a two-tier basis, split between new homes – which continues to do pretty well – and second-hand homes – which continues to be subdued, with both reluctant buyers and sellers. That weaker demand and subdued supply looks likely to continue, at least for the short-term – transactions are still flat, we have had dampened numbers of mortgage approvals for a while, and house price inflation has come down quite significantly, although there are some notable regional differences here.

All of that said, it was somewhat reassuring to hear David talking about long-term optimism as opposed to short-term (three months, etc) uncertainty. He pointed to the latest RICS report which 12-months hence is optimistic about sales and prices, although (as we all must do) he did suggest that a no-deal Brexit would throw an almighty curve ball into the mix with the potential for a big drop in house prices and the Bank of England having to cut interest rates again. This sounds bad, but when compared to the other scenario outlined – an old-fashioned crisis with house price falls of 30-40% resulting in rates being increased to 4-5% – it seems infinitely better.

Rates, in particular, is an important area to review. As David points out, most Central Banks are trying to ‘normalise’ rate levels, which for the UK probably means around the 2% BBR mark. He did suggest that the Bank’s MPC can’t change rates at the moment because of Brexit, but that if inflation were to rise a lot above its target, it might be forced to act, especially as the Bank currently fears wage pressures might return if it doesn’t head them off. Overall, in such circumstances a return to rate normality of around 2% shouldn’t be too bad, according to David, but if that cataclysmic scenario mentioned above does come about – which he doesn’t believe it will – the MPC might have to raise rates by a lot more.

Overall, the Brexit limbo goes on for the short-term at least, and even if the Withdrawal Agreement does find a way through Parliament, the negotiations with the EU and the transition period are likely to go on for a long time. We should perhaps all get used to that, and steel our businesses for all eventualities – now is therefore the right time to make the most of all opportunities and to ensure you can give your clients all the services they want and need, so in the future they always return to you.

Enter your e-mail address to receive updates straight to your inbox



Show Comments