What will happen to mortgages and house prices after Brexit?

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Now could be a great time to buy a home in the UK, as market conditions give buyers several reasons to act now – especially as we approach Brexit.

The combination of Brexit and house prices is currently a hot topic within the property industry, and whether or not we’ll see an increase or decrease in the cost of homes. But, a whole host of factors mean that the market has moved in favour of buyers, including the largest seasonal drop in house prices since 2012, which Rightmove reported in December 2018 as an ‘early Christmas gift’ for those looking to buy. Uncertainty around house prices after Brexit is keeping mortgage rates down, while interest rates remain low since the Bank of England raised the base rate from 0.5 to 0.75 per cent in the summer.

But with the UK set to leave from the European Union this year, what will happen to house prices after Brexit?

Potential rises and unpredictability of house prices after Brexit

The answer to this is that homebuyers could well be better off buying now, rather than after Brexit. This is because UK mortgage interest rates are set to rise and house prices after Brexit are unpredictable. Martin Lewis, founder of consumer finance website, Money Saving Expert, suggested: “You won’t save that much on waiting but there is a risk of them going up.”

On the topic of how Brexit will affect house prices and mortgages, Lewis explained that as financial markets rise and fall based on perception and confidence, any event as significant as Brexit is likely to have an impact. Since the amount we pay on our mortgage is linked to the interest rates set by the Bank of England, they would also be affected.

This means that if there is no deal struck with the EU regarding the terms of the UK’s exit from the union, this is likely to cause uncertainty and the markets could drop. If the markets drop, the value of the pound will decrease against other global currencies, and it will become more expensive to import goods from abroad. The Bank of England will then need to strengthen the pound by imposing a rise in the rate of interest – meaning higher repayments on mortgages.

Lewis added that “things are more likely to be smoother” if the UK does manage to garner a deal with the EU.

The view from the lenders

The banks are seeing a positive outlook on what will happen to property prices after Brexit, with cautious optimism that the market will continue to improve. Russell Galley, managing director at Halifax, commented: “Looking ahead, aside from the obvious political and economic uncertainty, the biggest issue for the housing market in 2019 will be the degree to which mortgage payment affordability changes.

“Average pay growth is likely to gather pace but, with a further interest rate increase also predicted, house prices are unlikely to be pushed significantly in either direction.”

Galley said that, based on the UK exiting the EU with a withdrawal agreement and transition period: “We expect annual house price growth nationally to be in the range of 2 per cent to 4 per cent by the end of 2019. This is slightly stronger than 2018, but still fairly subdued by modern comparison. However, the uncertainty around how Brexit plays out means there are risks to both sides of our forecast.”