How is Brexit going to affect the housing market?
In response to Mark Carney’s worst-case scenario comments on house prices following Brexit, Andrew Smith, Chief Investment Officer of the TM home investor fund, responds:
“A 35% fall in house prices, as suggested in the Bank of England’s extreme stress testing scenario, is twice as large as after the global financial crash in 2008, and the causes would also be very damaging to other investment markets. While residential property markets do suffer in a crash, the sector’s usual defensive qualities relative to equities and commercial property would apply to a Brexit-driven crisis, as they have in crises in the past. In the Treasury’s latest survey of independent forecasts in August, only one forecaster predicted an overall house price decline, of 3% for this year, and none predicted declines in subsequent years, so this worst-case scenario is clearly not a general expectation.
“The health of the UK economy is just one factor in determining house prices. Consumer demand and housing supply is also crucial, regardless of the state of the economy. People need somewhere to live and in the UK we are simply not building enough houses to keep up with demand from a growing number of households. Half of owned houses have no mortgage, and a fifth of all households pay rent. In the event of a crash in house prices, rents are more likely to rise than fall – RICS recently predicted that rents will increase by nearly 2% over the next twelve months and 15% in five years.
“For investors in residential property, the outlook for the UK private rental market remains robust. Whatever happens with a Brexit deal (or not), we face a prolonged period of economic and political uncertainty, not just confined to the UK. That said, my sense is that we are are probably close to the point of maximum uncertainty, and adverse impact on business and consumer sentiment, now. One way or another, as the shape of a deal emerges, or conversely the prospect of “no deal” becomes a reality, some of the fog will clear, and decision-making processes will start to adjust to the new climate.”