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The impact of Brexit on the housing market

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The lead-up to the EU Referendum was full of speculation about how a potential exit from the European Union would affect the UK.

From house prices, to mortgages, to pensions, to savings, analysts’ estimates ranged from mild to severe, but now that the decision has been made and Brexit is a reality, what has the impact actually been?

Differing expectations

After the announcement, it was widely expected that the Bank of England would finally cut interest rates for the first time in seven years, with governor Mark Carney expected to announce a fall from 0.5 per cent to 0.25 per cent to continue stimulating the economy.

This would have resulted in an instant reduction in monthly outgoings for many homeowners, specifically those on tracker mortgages, whose payments will vary depending on the BoE’s base rate.

According to figures from the Council of Mortgage Lenders, a rate cut would save £26 a month on a £200,000, 25-year repayment mortgage, while data compiled by the Office for National Statistics (ONS) indicates a monthly reduction of £22 on a typical mortgage.

In the end, the appointment of a new prime minister and several cabinet changes contributed to eight of the nine members of the Monetary Policy Committee deciding to maintain the 0.5 per cent rate, although it expects policy to be loosened in August, which may yet see a fall to 0.25 per cent.

While this means tracker mortgages may not fall in the immediate term, the number of homeowners taking out this type of mortgage has actually fallen in recent times in favour of fixed-rate deals.

It is easy to see why, with many of these deals currently hitting all-time lows; Coventry Building Society recently launched the cheapest ten-year fixed rate deal in the UK at 2.39 per cent, just hours after HSBC also shattered the 3 per cent barrier by launching its own 2.69 per cent deal.

Many two-year fixed rate deals are cheaper still, and could fall further still as market conditions increase access to good deals, providing excellent opportunities for current and prospective homeowners to benefit from what some analysts are referring to as  a ’mortgage war’.

Effect on house prices

The effect of Brexit on house prices was also debated extensively in the run-up to the referendum, with analysts again split on their predictions.

Data from the ONS shows that in May, a month before the vote, UK house prices increased by 1.2 per cent compared to the previous month, on an annual basis.

The figures - based on the number of mortgage completions in the UK – suggest that confidence in the housing market was high in the second quarter of the year, with many home buyers expecting the status quo to be maintained in the coming months.

Although a reduction in house prices has been predicted following the Brexit decision, the majority of this will be accounted for by London, where prices have historically been far more volatile.

ONS figures suggest that prices in London increased by 13.6 per cent in May, but at the same time can drop significantly when there is uncertainty in the market.

Conversely, a rise of 3.2 per cent was observed in the North East over the same period and similar marginal increases were recorded in most other regions outside London, with any future reductions expected to be equally marginal and also less sustained.

RICS anticipates that any impact of Brexit on house prices would last for 12 months in London but for just three months in the rest of the country, while long-term forecasts remain positive.

Future movement

Brexit’s ultimate impact on the housing market will not be known for a number of months or even years, but already there are signs that the initial uncertainty is giving way to business as usual, with the pound stabilising and the new government prioritising a smooth exit from the European Union.

In the meantime, mortgage lenders are continuing to offer competitive rates, and with the BoE indicating that the base rate may fall in August, now may be the time to strike for those hoping to get the best deals on a new home.


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