The calm after the storm

The UK is now more than two months into the third Article 50 extension, and the lack of Brexit compromise continues to provide economic doubt and instability, and it is this uncertainty that is dampening activity in the housing market. After all, the property market thrives on confidence. A number of questions have arisen of late, including what housing policies will be pursued under this new government and whether the UK will leave the EU with or without a deal on 31 January.

The Organisation for Economic Co-operation and Development forecasts that a no-deal Brexit will cut almost 3% from UK economic growth over the next three years, which if accurate could plunge the country into recession this year, prolonging Britain’s growth rate until at least 2022, and in turn, potentially crash the UK’s housing market.

The Office for Budget Responsibility (OBR) warns that a no-deal Brexit would leave property prices 10% lower within two years and 13% lower by 2024. A more pessimistic report, issued by KPMG, predicts a drop of up to 20%. Some people have rejected these forecasts, dismissing them as ‘project fear’ from so-called ‘remain’ experts.

After all, property prices were at the forefront of the EU debate in the run-up to the referendum, with the then-chancellor George Osborne claiming that average UK property values could fall by up to 18% following a Brexit vote. But his assertion, or scare tactic, depending on how you viewed it, was rather bold given the chronic housing shortage. Consequently, property prices increased, on average, by just over 7% between June 2016 and June 2018.

However, the OBR and KPMG’s predictions look a lot less like ‘project fear’ than Osborne’s forecast, partly because they are not campaigning in a referendum. The prospect of a property price crash will appeal to some frustrated renters, as it puts power back in the hands of the priced-out. Sellers’ expectations have dropped somewhat of late, with some purchasers finding that if a vendor is being pressured to move that puts them in an even better position to secure a bargain, particularly if they are not in a chain.

With the average time it takes to sell a home in London recently increasing to 14.5 weeks, sellers are increasingly open to negotiations, with vendors having to accept a discount to asking price of on average more than 5% in London, where the average property price stands at £484,500, according to HomeLet.

Even if the UK does leave the EU on 31 January with a withdrawal agreement intact, the OCED predicts that this would only limit the fall in the UK’s rate of GDP growth to 0.9% in 2020, leaving the economy to suffer what Jagjit Chadha, director of the National Institute of Economic and Social Research, recently termed a “slow puncture”.

A ‘slow puncture’ to the economy and subsequently housing market may not be ideal, but it trumps the idea of a market that is set to burst. If a Brexit deal can pass through the House of Commons, this will create a greater degree of political stability, helping to spark a housing market recovery, albeit a modest one, as London continues to hold its position as a financial powerhouse.

Zoopla director Richard Donnell is among those expecting to see a modest bounce-back in demand over the next six to 12-month period if a Brexit withdrawal deal is supported by parliament.
He said: *“London is three years into a re-pricing process, and we expect sales volumes to slowly improve over 2020, while house price growth remains subdued.”* Making accurate and precise future predictions for the property market is difficult, given the multitude of potential Brexit outcomes, but there is one thing that is certain - whatever happens moving forward, existing market conditions mean that there is a ‘window of opportunity’ to buy an attractively priced property in London before values eventually rise.