How Would a Hard Brexit Affect Falmouth House Prices?
We have been asked a number of times recently what a hard Brexit would mean to the local property market. To be honest we have been holding off giving our thoughts, as we did not want to add fuel to the stories being banded around in the national press.
However, it’s obviously a topic that local homeowners are interested in… so we are going to try and give you what we consider a fair and unbiased piece on what would happen if a hard Brexit takes place in March 2019.
After the weather and football, the British obsession on the UK property market is without comparison to any other country in the world. The Daily Mail and other publications seem to have the state of the country’s property market on its standard weekly rotation of front-page stories!
There are better economic indexes and statistics to judge the economy (and more importantly) the property market. The number of transactions is just as important, if not more, as a barometer of the state of the property market.
Worries that the Brexit referendum would lead to a fast crash in local (and national) property values have proved largely unfounded, although the growth of property values in Falmouth has reduced slightly since the referendum results in the summer of 2016.
Now, it’s true the local property market is seeing less people sell and move and the property values are rising at a slower rate in 2018 compared to the heady days of the first half of this decade (2010 to 2015). However before we all start panicking, let’s ask ourselves, what exactly has happened in the last couple of years since the Brexit vote?
Cornwall and Falmouth house prices have risen by 13.8% since the EU Referendum…
…and yes, in 2018 we are on track (and again this is projected) to finish on 10,593 property transactions (i.e. the number of people selling their home) … which is less than 2017 … but still higher than the long term 12 year average of 9,327 transactions in the local council area.
So, it appears the EU vote hasn’t caused many major issues so far, however, if there were to be a large economic jolt, could it be a different story? In reality how likely is that?
The property market is mostly influenced by interest rates and salaries.
A hard Brexit is likely to subdue wage growth to some degree. Yet the level of the change will depend on the type of Brexit deal (or no deal).
If trade barriers are imposed on a hard Brexit, imports will become more expensive, inflation will probably rise and growth could well fall. The implications financially and economically of being outside of the Euro will evolve as time passes. Yet interest rates remain low and continued austerity has kept wholesale salary inflation largely in check.
In plain language the populist suggestion is that a hard Brexit will be worse for house prices than a deal.
So why did the Governor of the Bank of England suggest a disorderly hard Brexit would affect house prices by up to 35%?
It was only nine years ago that we went through the global financial crisis with the credit crunch. Nationally, in most locations, including here, property values dropped in value by 16% to 19% over an 18-month period. Look at the graph and if we had a similar percentage drop, it would only take us back to the property value levels we were achieving in 2015.
Let’s not forget that the Bank of England introduced some measures to ensure that we didn’t have another bubble in any future property market.
One of the biggest factors of the 2009 property crash was reported to be the level of irresponsible lending by the banks themselves.
The Bank of England Mortgage Market Review of 2014 forced Banks to lend on how much borrowers had left after regular expenditure, rather than on their income. Income multipliers that were eight or nine times income pre-credit crunch were significantly curtailed.
Banks could only offer a small number of residential mortgages above 4.5 times income and in doing so they had to assess whether the borrower could afford the mortgage if interest rates at the time of lending rose by three percentage points over the first five years of the loan. In practice the wisdom was that this `stress test` would largely remove all the major stumbling blocks out of the system.
So, what next?
A lot of local homeowners might wait until 2019 and beyond Brexit to move, meaning less choice for buyers, especially in desirable local areas.
Local Landlords and tenants may also likely to hang off moving until next year although we suspect (as we had this on the run up to the 2015 General Election when it was thought Labour might get into Government), that during the lull, there could be some buy to let bargains to be had from people having to move (Brexit or No Brexit) or the usual panic selling at times of uncertainty.
Brexit, No Brexit, Hard Brexit … in the whole scheme of things, it will be another footnote to history in a decade. We have survived the Oil Crisis, 20%+ Hyperinflation in the 1970’s, Mass Unemployment in the 1980s, Interest Rates of 15% in 1990’s, the Global Financial Crash in 2009 … what will be will be/
People still need a house and a roof over their heads. If property values drop, it is only a paper drop in value … because you lose when you actually sell. Long term, we aren’t building enough homes. Therein lies the crux of many of the sectors issues and trends. Property ownership at these moments in time remains a long game. No matter what happens – the property market always seems to come good in the end.