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Should I exit before Brexit?

One question I am being asked more and more by home sellers, buyers, landlords and property investors “How will Brexit affect the house market?”

It’s a good question and certainly very topical right now and I guess the honest answer is nobody really knows. There are plenty of so call “experts” better qualified than me giving an opinion, however I suspect a lot will depend on what sort of Brexit we see come 11 pm on March 29th 2019!

It is understandable for people to worry, after football and the weather, British people are obsessed with the housing market. Clearly the worst-case scenario is a no deal Brexit, which is still a possibility, but it is vitally important for everybody to stay calm, keep a cool head and not make rash decisions. There is however, no doubt that in the two years since the original Brexit referendum, due in part to the Government’s, pretty incompetent handling of such a monumental decision, the uncertainty has had an effect on the market, with house price growth in the second half of this decade much slower than the before.

Concerns that the Brexit referendum would lead to an immediate crash in house prices has proved unfounded. However, the average house price in the UK went up just 3% in the year to the end of May 2018, down from 8% the year before the EU referendum according to recent figures published by the Office for National Statistics. Here in Stockport, a reasonably affluent suburb of South Manchester, we have seen steady growth maintained at pre-referendum levels of around 6%, whilst across the North, North West, Midlands, South West and Northern Ireland have all remained steady at between 4-5%.
The worst affected market by far has been London and its commuter belt. Pre-referendum, London house prices were booming! And growing at an annual rate of 12%, but the most recent figures show how they actually feel 0.4% in the year to May 2018, dragging down the National Average along with it. Looking at transaction figures is also a good indicator of market performance and demonstrate that things are not right in London, as sales dropped 20% in the capital from 2015 to 2017. I think it is important here to balance out the argument and not blame everything on Brexit. A significant drop in the number of buy to let investors has also been caused by increasing tax burdens and significant regulatory changes that have eaten into many landlord’s profits and has therefore discouraged would be investors from entering the market.

So, with less than six months to go, let’s take a look at how the various scenarios could play out.

What happens if we get a deal?

If the Government can negotiate a deal with the EU before March 2019 – what is known as a soft Brexit, we will have until the 31st December 2020 or possibly longer before anything really changes. During this time we will still be subject to existing EU rules ( common standards ) and freedoms ( tariff free trade and free movement of people ) crucially, businesses will have time to adjust and the Government time to negotiate new trade deals outside the EU. The Bank of England estimates it is likely to take a minimum period of 18-24 months to negotiate new trade deals, so we are already cutting it fine! But having this transitional period will cause much less panic and worry, so in my opinion would be the preferable option.

What happens in a “no deal” situation?

If the Government fail to negotiate a deal, there will be no transitional period. A hard Brexit and the UK will immediately lose access to the single market. There is little doubt this would be a kick in the teeth for the country and would leave the UK in a weak bargaining position. The odds seem to be shortening by the day, but I remain hopeful as often business negotiations are very last minute, but the brinksmanship is doing nothing for anybody’s nerves!

What does it all mean for the housing market?

Well, returning to my favourite topic, Property and looking at the possible worst-case scenario, a no deal Brexit, I think confidence in the UK economy could be seriously affected and currency could suffer, prompting an unwelcome rise in interest rates and inflation. Businesses could be forced to lay off staff, unemployment would rise, hitting households hard- especially those with some debt already. Lower incomes and higher mortgage rates would be an unmitigated disaster for the fragile housing market. Prices would drop, pushing some back into negative equity and it would be more unaffordable for those thinking of taking out a mortgage. The governor of the Bank of England didn’t help recently warning that a “no deal” Brexit could result in house prices dropping as much as 35%, which I thought was extremely unhelpful scaremongering and not going to happen. Now as an eternal optimist, the scenario I painted just them is purely conjecture at the moment and I am cautiously optimistic that the Government will dig themselves out of the current hole they are in and negotiate some sort of deal with the EU at the very least. We’ve been through some pretty rough economic times before in the 1970’s, high unemployment in the 80’s and the financial crash 10 years ago and survived and subsequently prospered, so I believe a soft Brexit is still the most likely outcome, despite all the doom and gloom being peddled by all and sundry.

Nevertheless, the 35% figure has stuck in many people’s heads and is clearly having an effect on the housing market. Uncertainty creates inertia. We are seeing lower numbers of houses coming to the market in Cheadle and whilst there are still buyers about, they are taking their time choosing, driving harder bargains and surveyors are getting twitchy, with more down valuations. Sellers shouldn’t be unduly worried though given prices in the area have risen around 37% in the last 8 years, so a little correction in the market will allow for a little negotiation without suffering any real capital loss.
The slight adjustment of expectation between seller and buyer could be a good thing for the market and encourage for activity.

So, what to do for now?

Absolutely nothing! It’s natural to plan for the worst, I get that, but the reality is likely to be nothing like the worst-case scenario. Ultimately people need to move for a variety of reasons and there are never enough properties available to meet the demand. Whether it is a hard or soft Brexit, the Government needs to make good on its promise to build more homes, in particular low cost and affordable housing for young people to be able to get a foot on the property ladder.

It would be naive to think there will be no change as a result of Brexit, but we also know the UK banking system is resilient and robust and I have confidence that they are preparing for all eventualities. In addition we know trade will continue because just as the UK is reliant on the EU countries for certain imports – they are just as reliant on us for some of our exports.

So my plan is to remain very British, keep calm and carry on regardless. The current uncertainty is giving the market jitters, but there are no signs to suggest there will be a post Brexit crash like in 2007. The key will be holding one’s nerve and waiting to see what a post Brexit Britain actually looks like, rather than panic dumping your property.

Whether you are selling, buying, letting or renting, we’re here to help. Call Patrick, Sarah, Joe or myself on 0161 428 3663 or email: sales@mkiea.co.uk for expert advice which is honest, accurate and informative. Better still, why not pop into our High Street office for an informal chat, you never know, we might even stretch to one of our famous brews!

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