UK Chancellor George Osborne has warned that a vote for the UK to leave the European Union could severely hit house prices, although homeowners remain confident in the climbing value of their properties.
Speaking at the G7 summit in Japan, Osborne said that house prices could be hit by as much as 18 per cent over the next two years, in the event of a Brexit. The “economic shock” that would ensue would also cause mortgages to become more expensive.
The figures are comparing house prices to what they would be, if Britain were to remain in the EU, suggesting that they would be relatively down by between 10 per cent and 18 per cent.
“If we leave the European Union, there will be an immediate economic shock that will hit financial markets. People will not know what the future looks like,” Osborne told the press. “In the long term, the country and the people in the country are going to be poorer. That affects the value of people’s homes and the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10 per cent and up to 18 per cent.”
The Office for Budget Responsibility has already forecast property prices to climb 9.4 per cent over the next two years, which means that in the event of a Brexit, values would be between 0.6 and 0.8 per cent down from their current value.
Brits, though, are confident in the value of their homes, with the latest Knight Frank and Markit Economics House Price Sentiment Index finding one in four households said their home’s value had risen over the last month.
Gráinne Gilmore, head of UK residential research at Knight Frank, comments: “The steadiness of the headline house price sentiment index during such political uncertainty over the EU is a reflection that the fundamentals of the market remain unchanged – there is still an imbalance between demand and supply of housing, and for those with access to deposit payments, mortgage rates are still near record lows.
Tim Moore, senior economist at Markit, adds: “Headwinds to buyer confidence appear to have been offset by favourable undercurrents for house prices elsewhere. In particular, the risks of an impending interest rate rise now seem a more distant prospect and ultra-low mortgages have become more widely available. Coupled with the perception of a long-term shortfall in housing supply, the latest survey highlights that expectations of rising property values are well entrenched among UK households.”
Brexit could cause house price fall, warn landlords and agents
19th May 2016
Voting to leave the EU could cause Britain’s house prices to fall, estate agents and landlords warn.
A new report from the National Association of Estate Agents (NAEA) and Association of Residential Letting Agents (ARLA) says that the average UK house price could be worth as much as £2,300 less in 2018, should a “Brexit” take place.
The impact of a withdrawal from the European Union, though, is more complicated than simple cause and effect, as it would have different repercussions for different sectors of the real estate industry.
While the impact Brexit will have on migration policies is unconfirmed, imposing greater restrictions on foreign workers coming into the UK may compromise the UK’s ability to build homes – and the government has pledged to build one million new homes by 2020.
Construction based jobs are decreasing in popularity among UK nationals, and as one in 20 (five per cent) current construction workers were born in non-UK EU countries, workers from non-UK EU countries are becoming more important than ever in filling the skills gap to boost housing stock.
Mark Hayward, managing director, National Association of Estate Agents says: “An ‘out’ vote could mean that in ten years’ time we’d find ourselves with a severe skills shortage of construction workers. So even if we then had planning permission, investment and materials to build more housing, we simply wouldn’t have the resource to put the bricks and mortar together. It has the potential to have a very damaging effect on the future housing market.”
However, leaving the EU could also provide first-time-buyers (FTB) with breathing space as demand for housing eases off. Indeed, non-EU businesses are currently attracted to the UK’s status as a gateway to the single market as it allows them to establish and grow their presence across Europe. In 2014, a fifth (19 per cent, £5.3bn) of total FDI inflow into the UK came from EU sources, and in 2013, 17 per cent of sales in London’s prime property market made to non-UK recipients were to European nationals.
In the event of Brexit, a portion of FDI would be re-directed to EU countries, freeing up housing units, particularly in London, for British buyers.
Similarly, there are currently 3.03 million UK residents who were born in other EU countries. If, following a Brexit vote, the UK does not maintain free movement of labour, the total population of the UK could decrease by 1.06 million people. With fewer people, demand would ease, making the market theoretically more accessible for FTBs, as well as second steppers and last-time-buyers . “This will be especially apparent in the capital,” says the report.
Reduced demand and rental population would also put downward pressure on rents, notes David Cox, managing director, Association of Residential Letting Agent.
“The fact that rent costs would face downward pressure is both a blessing and a curse,” he explains. “While renters should face fair and reasonable prices, landlords need to be able to at least break even on any out-goings they have, such as a mortgage. If demand eases to such an extent that landlords cannot recuperate costs, we’ll likely see a mass exit from the market, which would then just have the opposite effect on demand as supply falls – and we’d be back to square one.”
“Unfortunately, it’s not as simple as saying that Brexit would have a positive or negative effect on the property market,” concludes Hayward. “We might like to believe, for example, that the ease in demand and lower prices will allow first time buyers a route into the market, but any transactions may be put off for the short term until the period of uncertainty is over. An ease in demand is likely to be matched or outweighed by a decrease in housing stock, not just from reduced labour, as considered in the research, but also from decreased accessibility to building materials produced in non-UK EU countries. Ultimately, it could have long-lasting and damaging consequences.”Google+