Mark Carney warns ministers house prices could plunge with a bad no-deal

Michael Lloyd

September 14, 2018

Bank of England Governor Mark Carney has warned government ministers that a worst-case scenario no-deal Brexit could lead to house prices plunging by over a third, the BBC has reported.

The Bank carries out stress tests and its latest one in November found house prices could fall by 33% in a worst case scenario.

Yesterday Carney addressed ministers at Downing Street about the government’s plans for a no-deal and reports said the Governor outlined that inflation and the pound could go down, mortgage rates could spiral and many homeowners could be left in negative equity.

Ray Boulger, senior technical manager at John Charcol, said: “I think there’s been some misleading reporting. It appears to be based on a briefing to the Cabinet. It’s not a forecast but a review of the stress test the Bank did that highlighted what might happen in worst case scenario.

“Most of the banks passed in terms of being able to survive such a massive hit. I think stakes are too high for both the UK and EU to get a no-deal. One should still plan for one as part of the negotiating strategy though.

“The market is now factoring in the risk of a no-deal scenario. When or if we do get a deal and if it’s reasonable it’ll be a positive story.”

He added that the market always anticipates what it thinks will happen but doesn’t always get it right.

Boulger added: “If we get a bad deal there will be a negative reaction in sterling. If we get a deal that mitigates lots of the risk it’ll be positive for the economy. If it’s a reasonable deal you’ll see a bounce in the market.

“Which way the market leans will depend on market expectations and the type of deal we get. It’s what the ultimate deal is compared with what the market expects at the time.”

Carney said that his response to a no-deal whereby sterling takes a hit, would be to raise interest rates, something Boulger was surprised by because it’s the opposite of what he did after the referendum result, whereby the Bank brought interest rates down.

He added: “You can’t ignore the risks of a no-deal but I think we’ll end up with a deal because the implications will be so high both for the EU and for us. There’s a clear interest for both the UK and the EU to strike a deal.

“I would be surprised if we don’t reach one but it’s also about how good that deal is. I think as happens with the EU negotiating, it will go into the 11th hour.”

Simon Tollit, director of central London estate agency Tedworth Property, focused on the positives, reiterating that Carney’s warning is a worst-case scenario and bears no reflection on today’s market conditions.

He said: “Undoubtedly prices have fallen significantly from their peak in the third quarter of 2014 and while uncertainty remains from buyers and prices are subdued, transactions are still taking place.

“Arguably, whatever happens with Brexit, the outcome should provide some form of clarity allowing people the chance to make informed decisions.

“In the luxury sector, a falling pound presents opportunities for international buyers which could actually support prices rather than depress them further.

“Perhaps we should consider a best-case scenario for a change rather than the standard doom and gloom viewpoint we are all so accustomed to hearing.”

A spokesman for the Prime Minister said the government was preparing for “all possible scenarios”.

He said: “Cabinet agreed that securing a deal with the EU based on the Chequers white paper was the government’s firm aim and we are confident of success,” he said.

“However, as a responsible government, we need to plan for every eventuality. The cabinet agreed that no deal remains an unlikely but possible scenario in six months’ time.

“Departments have significantly increased no-deal preparations in recent months.

“Cabinet agreed to further ramp up no-deal preparations in the weeks and months to come to ensure the country is ready for all possible scenarios.”

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