Will Brexit Affect UK Property Prices?

Understanding Brexit

The oft-heard term Brexit is short for 'Britain's exit from EU'. UK was set to leave the EU on March 29, 2019, but MPs could not come on the same platform, as regards the kind of arrangement that they wanted to leave with. After extensive discussions with EU leaders, it was mutually agreed to delay Brexit 'only as long as necessary', but not later than October 31, 2019, after which the UK can leave.

Brexit equals uncertainty

Uncertainty looms large in the property market due to Brexit. However, the good news is Brexit will not have much effect on house prices, though the trend of escalating house prices will continue as usual, albeit at a slower rate than previous years. Despite this optimism, there are some gray areas too.

One of the gray areas is the difficulty in predicting the effect of Brexit on the country's economic health. Since the property market depends upon the country's economic health, this makes it difficult to predict its impact on the house prices. There is also a likelihood of reduction in house price growth if the pound weakens further and there is a surge in inflation, and rise in the interest rates.

Add to this the slow growth of wages and restrictions on banks from lending due to stricter mortgage regulations. This may prevent property price escalation. However, there is no possibility of property prices suddenly plummeting. Owing to this uncertainty over Brexit, the buyers and sellers are compelled to sit tight and watch the developments.

Likely effect of Brexit on property prices

According to the Bank of England, there can be a significant impact of Brexit on the property market. In one scenario, there could be a 30 percent reduction in property prices, as compared to pre-Brexit level. Moreover, experts believe that property investments outside the EU could face difficult times.

In the event of the success of Brexit negotiations and if the economic growth continues on a positive note, confidence is certain to get boosted. In such a scenario, house prices are likely to rise at a faster rate than expected.

Changes to the stamp duty system have impacted the property prices. Prices have fallen at the high-end of the property market, and there has been a slowdown among the rest. This logjam at the top of the market is preventing buyers from upgrading to bigger and more expensive properties.

Some suggest a possibility of 'Brexit bounce' if the deal with EU ends satisfactorily. A resolution of political deadlock over the UK's departure will find a growing number of house buyers ready to buy homes. As of now, people are improving and expanding their homes, rather than going in for new ones.

One thing is clear, people are getting influenced in their buying decisions by their political views, due to the uncertainty over Brexit. Now the bigger criterion for buying a house is not affordability, but buyers' confidence. A 'hard Brexit' scenario painted by the Bank of England involves spiraling rates of interest and decrease in house prices up to 35 percent over three years.

Conclusion

According to Nationwide, the UK house prices showed the slowest annual rate for nearly six years in January this year. This was due to the uncertain economic outlook on buyer sentiment, because of the looming uncertainty being faced in resolving the Brexit issue.