How would a no-deal Brexit affect the UK property market?

Towards the end of 2018, it was reported by the Royal Institute of Chartered Surveyors that the outlook for property prices over the next 12 months could see prices fall to the lowest since the June 2016 referendum, however much of their concern was focused around London and other areas of the south.

Governor of the Bank of England, Mark Carney, predicted that if the country were to end up with a no-deal Brexit that property prices could drop by 35%, which has added to the current 'market jitters' seeing buyers less likely to be putting their properties on the market. However, other sources have said that Mr Carney's predictions are an extreme scenario and that UK property prices will not drop by a third - if at all. Paul Smith, chief executive of estate agency Haart, echoes Mr Carney's claims that house prices could drop as a result of a no-deal Brexit, however said that it would only be a "short term blow" to the UK property market, and wouldn't see such extreme drops.

He added: "The most likely impact would be a slower market, with fewer transactions taking place as both buyers and sellers hit the brakes on their plans. However, I don't foresee a large-scale property market crash and instead anticipate that in this scenario house prices are unlikely to fall by more than 5% due to a shortage of homes on the market propping up overall prices.

"It's also extremely unlikely that in the event of the UK leaving the EU without a deal, there will be a fiscal stimulus in the form of a stamp duty holiday, and a drop in the Bank of England base rate to support borrowers."

Mr Smith's predictions were supported by Howard Archer, chief economic advisor to the EY ITEM Club, who told the BBC last year that he expected a no-deal Brexit to result in a 'moderate' drop in house prices.

However, Mr Carney's predictions could already be in motion with an uncertainty around how Brexit will turn out, and without confirmation of whether we will be in a deal or no-deal situation. House prices in London and the south-east have already seen a drop of 0.7%, according the the Office for National Statistics. Although, this isn't the case for more northern areas such as Manchester and Liverpool, where the average property prices are continuing to rise.

Ray Ballger, technical product manager at broker John Charcol, said that one positive of Brexit had been the help that uncertainty had caused. "The helping to keep mortgage rates low and hence the cost of home ownership low."

One of the main concerns surrounding Brexit - whether that be a deal or no-deal Brexit - is the effect it will have on the country's economic growth. Analysts at financial investment specialists, UBS, predicted that a 'soft' Brexit could see a 6.9% decrease in the gross domestic product over the next five years, whereas a 'hard' Brexit could see the GDP drop by as much as 10% by 2023. Predictions for how this will affect the property market were positive though, with analysts stating that property will remain a robust investment option. This has been helped greatly by the government's Help to Buy Scheme, which has allowed for an increase in the number of new-build homes and helped increase the number of transactions of these, especially amongst first-time buyers.

"[There are] no visible signs of distress in the financial system, hence we see no reason to expect any sharp reduction in mortgage lending" - UBS.

Outlook for the UK property market if a no-deal Brexit does come about, however, is generally positive, with many predicting that even if there is a dip in the market, it won't be a long-term issue. Peter Izard of Investec Private Bank said: "The UK has an excellent and highly respected legal process. When you buy a property, you have the security of title on that asset...The simple economic equation between supply and demand also works in the market's favour. In the long term, as a country we cannot build enough houses, particularly in prime, central London. Therefore, property in the UK, whether for living or as an investment, is a sound long-term investment, that historically has always appreciated in value."

The Guardian assumed that GDP could fall by as much a 8 - 10%, exceeding the 2008 financial crisis. Other sources, including Paul Krugman (a former winner of the Nobel prize for economics) and Andrew Sentance (a former member of the bank's interest rate setting committee) however, have said that these predictions are too severe.

The Guardian also predicted that a no-deal Brexit would have a knock-on effect to unemployment rates in the UK, and we could see this rise from 4.1% to over 7.5% over the coming year; interest rates were also a cause for concern with predictions that a no-deal situation would force these rates to rise to 6.5%.

Landlords were also one of the key points of discussion of who would be most affected by a no-deal Brexit. Chris Norris, director of policy and practice at the National Landlords Association (NLA) said: "The issues troubling most landlords are the status of non-UK, and in particular non-EU, citizens, given their responsibilities to police the government's Right to Rent Policy, as well as the overall impact that that divergence [Brexit] will have on the stability of the property market. It is still too early to predict what impact Brexit will have on property values.

"A weakening of the appeal of UK investment could drive prices down or a lack of certainly could drive up interest in the reliable stability of bricks and mortar, likewise, changes to immigration policy could reduce demand from those coming to the UK, or drive up interest from those taking advantage of new arrangements with states outside the EU. It is likely that landlords with well-established, well-capitalised portfolios will fare reasonably well. However, those heavily reliant on finance may find uncertain conditions more troubling."

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