Uncertainty, a never ending issue for Brexit Britain

There are plenty of ifs and buts as the October 31 deadline approaches, but nothing spooks the markets more than uncertainty.

The looming deadline has hit consumer confidence, delaying decisions and impacting on housing transactions as buyers and sellers adopt a ‘wait and see’ approach.

Recent research by YouGov, undertaken on behalf of KIS Finance, found that more than one in five people in London have delayed making key financial decisions due to Brexit, which partly explains why activity in the housing market remains subdued.

Stretched affordability and uncertainty over Brexit negotiations has hit the housing market, resulting in a slowdown in the number of property sales.

The UK residential property transaction count for May was 89,810, down 11.3% year-on-year, the latest data from HMRC shows, and with no current end in sight to the Brexit debacle, the property market, particularly in London, remains stuck in the doldrums.

The Office for Budget Responsibility’s prediction for 2019 stands at 1.17 million UK property transactions, which is less than the total sales of 1.19 million recorded in 2018.

Russell Galley at Halifax said: “With the ongoing lack of clarity around Brexit, people will be looking for more certainty in the coming months, both to encourage them to list their property and to create the confidence needed to encourage buyers.”

Jeremy Hunt and Boris Johnson, the two men competing to become the next Conservative Party leader at the time of writing, both wish to install much needed confidence in the housing market, as well as the wider economy, by reopening the EU withdrawal agreement reached with outgoing Prime Minister Theresa May but rejected by MPs, so as to avoid a “disruptive” no-deal divorce in October.

If the new Prime Minister succeeds in getting a deal through parliament that would ensure Britain leaves the EU in an orderly manner, and that should help to boost the confidence of potential buyers ahead of the start of negotiations for a ‘future partnership’ plan with the EU.

But while it is in the EU and UK’s interest to avoid ‘no deal’, both Johnson and Hunt have vowed to take Britain out of the bloc later this year, even if an agreement cannot be reached, and that means the housing market could be heading for a serious decline.

Howard Archer at the Item Club believes residential property prices would quickly tumble by 5% if the UK leaves the EU without a deal, while the Bank of England says the impact on the housing market could be even more significant.

It previously predicted that house prices could drop by up to 30% from pre-Brexit levels if there was no-deal, or a “disorderly Brexit”, which could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis.

But having already been criticised by respected economists Paul Krugman, a former winner of the Nobel prize in economics, and Andrew Sentance, a former member of the Bank’s interest rate setting committee, the gloomy figures - certainly as far as house prices are concerned - have been broadly rejected by several property firms, including RICS, which dismissed the Bank’s prediction in the event of a disorderly Brexit as “implausible”.

It says: “Mainly, we would expect the Bank to cut interest rates and potentially restart quantitative easing in the wake of a no deal. The analysis behind the 30% fall in house prices assumes the policy rate would be hiked to 5.5%.”

The continued lack of housing supply also remains a factor, with the government’s target of building 300,000 new homes a year becoming increasingly unrealistic, while there are currently very few forced sellers, and that means property prices are unlikely to crash, although there may be short-term falls in some areas, including London.

There is also a growing shortage of rental properties causing rents to rise across many parts of the country, and that trend looks set to continue regardless of an agreed deal or no-deal Brexit.
But with EU leaders hinting that October 31 does not need to be a final deadline for negotiations if things are not resolved by then, the nightmare of ongoing uncertainty in Brexit Britain could last long after Halloween.