Brexit, the seemingly never-ending Greek drama, continues to take a toll on housing prices across the United Kingdom. On average, the British housing market is growing, but at a very modest pace and with considerable regional variation.
The anticipation of financial turmoil and protracted stagnation after ‘the day of reckoning’ (most recently set for 31 October 2019) has led to a saturated property market, particularly in big cities and the South-East, as well as reluctance to buy despite the ubiquity of cheap mortgage offers. Here is an overview of the different factors that contribute to the current situation on the UK property market.
Markets Hate Uncertainty
The starting position of our analysis is somewhat of a truism: Rational economic actors are strongly averse to uncertainty. Even in the context of the estate market, which is the last refuge of the risk-hating investor, the keg of gunpowder that is Brexit keeps on sending ripples of anxiety and caution. The prospect of a no-deal separation from Europe threatens to slash property values by a third, according to a 2018 statement by Michael Carney, Governor of the Bank of England. Even less grim forecasts cannot but acknowledge the obvious fact that Britain’s unclear political and economic future is chipping away at its house prices.
Growth Grinding Towards a Halt
Overall, the UK housing market is still growing against the odds. The second quarter of 2019 opened with average housing price growth of 0.9 per cent and closed at 0.5 per cent. Therefore, the downward trend is clear. June 2019 saw the average British home price at a little over £216,500, and experts are not optimistic about any further growth during the second half of the year.
London Falling
The capital of the United Kingdom is feeling the Brexit burn most intensely. For eight quarters in a row, London housing prices have been dropping. Compared to this time in 2015, prime properties in central London have lost nearly 13 per cent of their value. Luxury properties and larger estates have raced to the bottom fastest, as is customary in times of economic and political uncertainty.
Stable Support v Negative Sentiments
Lack of clarity for the immediate future notwithstanding, the UK estate market has some things going for it as well. The labour market is generally healthy and the borrowing conditions are favourable to a growing number of Britons. The limiting factor on property purchase activity is rather the negative sentiment that every reminder of the impending Brexit tends to trigger. The narrow avoidance of a no-deal Brexit in March 2019 provided an immediate though minor boost to housing prices this spring. Its effect, however, has largely been neutralised by the traditional summer plateau in property prices.
Not All About Brexit?
Some experts have offered the alternative opinion that the current slowdown in the growth of British property prices is independent of the political turmoil that accompanies Brexit. Instead, the slumping numbers might merely be a long-overdue market self-correction. A comparative analysis of price developments over several years provides some support for this hypothesis. However, it also demonstrates how sensitive the housing market has been to Brexit-related developments, with notable post-referendum drops and modest increases after major crises were averted.
Brexit as a Bringer of Opportunity
The Japanese kanji symbols that spell out the equivalence between crisis and opportunity are a cliché by now, but they should also be a good reminder that Brexit is not merely a destructive and negative force on the UK estate market. Experts do not foresee any major shake-ups, deal or no-deal. Prices, especially in London and other cities where estate bubbles discouraged buyers for years, are now dropping. While owners of luxury properties are hurting, regular Britons pondering their first estate purchase are in a good position to make a move. All it takes is overcoming the negative sentiments that surround Brexit, which is a tall order. The payoff, nevertheless, may well be worth it.
