Brexit has been around for, what at least seems to be, a
long, long time but more and more the concept of a hard Brexit has been taking
centre stage in the Brexit discussions recently.
I am often being asked how a hard Brexit would affect the
Falkirk property market so I am going to try and give you what I consider a
fair and unbiased piece on what would happen if a hard Brexit takes place in
March 2019.
After the weather and football, the British obsession on
the UK property market is without comparison to any other country in the world.
I swear The Daily Mail has the state of the country’s property market on its
standard weekly rotation of front-page stories! There are better economic
indexes and statistics to judge the economy (and more importantly) the property
market. The number of transactions are just as important, if not more, as an
indicator of the state of the property market.
Worries that a ‘Yes’ vote in the Brexit referendum would
lead to a fast crash in Falkirk (and national) property values were unfounded,
although the growth of property values in Falkirk has reduced since the
referendum in the summer of 2016.
Now, it’s true the Falkirk property market is seeing less
people sell and move and the property values are rising at a slightly slower
rate in 2018 compared to the heady days of a few years, but before we all start
panicking, let’s ask ourselves, what exactly has happened in the last couple of
years since the Brexit vote?
Falkirk
house prices have risen by 6.22% since the EU Referendum…
…and yes, in 2018 we are on
track (and again this is projected) to finish on 3,000 property transactions
(i.e. the number of people selling their home) … which is slightly more than
2017 … and higher still than the long term 10 year average of 2,468
transactions in the local council area.
So, it appears the EU vote
hasn’t caused many major issues so far, however, if there was a large economic
jolt, that could be a different game, yet how likely is that?
The property market is mostly influenced by
interest rates and salaries.
A hard Brexit would subdue wage growth to some degree,
yet the level of the change will depend on the undetermined type of Brexit deal
(or no deal). If trade barriers are imposed on a hard Brexit, imports will
become more expensive, inflation will rise and growth will fall, although at
least we are not in the Euro, meaning this could be tempered by the exchange
rate of the Pound against the Euro. In plain language, a hard Brexit will be
worse for house prices than a deal.
So
why did the Governor of the Bank of England suggest a disorderly hard Brexit
would affect house prices by up to 35%?
I mean it was only nine years ago we went through the
global financial crisis with the credit crunch. Nationally, in most locations
including Falkirk, property values dropped in value by 15-20% over a two to
three year period. If we had a similar percentage drop, it would only take us
back to the property value levels we were achieving in 2015.
And let’s not forget that the Bank of England introduced
some measures to ensure we didn’t have another bubble in any future property
market. One of the biggest factors of the 2009 property crash was the level of
irresponsible lending by the banks. The Bank of England Mortgage Market Review
of 2014 forced Banks to lend on how much borrowers had left after regular
expenditure, rather than on their income. Income multipliers that were 8 or 9
times income pre-credit crunch were significantly curtailed (meaning a Bank
could only offer a small number of residential mortgages above 4.5 times
income), and that Banks had to assess whether the borrower could afford the
mortgage if interest rates at the time of lending rose by three percentage
points over the first five years of the loan … meaning all the major possible
stumbling blocks have been mostly weeded out of the system.
So,
what next?
A lot of Falkirk homeowners might wait until 2019 to
move, meaning less choice for buyers, especially in the desirable areas of Falkirk.
For Falkirk landlords, Falkirk tenants are also likely to hang off moving until
next year, although I suspect (as we had this on the run up to the 2015 General
Election when it was thought Labour might get into Government), during the
lull, there could be some Falkirk buy to let bargains to be had from people
having to move (Brexit or No Brexit) or the usual panic selling at times of
uncertainty.
Brexit, No Brexit, Hard Brexit … in the whole scheme of
things, it will be another footnote to history in a decade. We have survived
the Oil Crisis, 20%+ Hyperinflation in the 1970’s, Mass Unemployment in the
1980s, Interest Rates of 15% in 1990’s, the Global Financial Crash in 2009 …
whatever happens, happens. People still need houses and a roof over their head.
If property values drop, it is only a paper drop in value … because you lose
when you actually sell. Long term, we aren’t building enough homes, and so, as
I always say, property is a long game no matter what happens – the property
market will always come good.
Growth in UK property values as well as in Falkirk seems
fated to slow over the next five to ten years, whatever sort of Brexit takes
place.
We hope you find our posts useful. If you would like some advice with your
potential investment, please call us (on 01324 469840), come and see us in our
offices (6 Vicar Street, Falkirk) or email us (robert@thekeyplace.co.uk).
#falkirk #property #buytolet #realestate #ownermanagedbusiness
#retirement #retirementplanning #energyefficiency #privaterentedsector #prs
#firsttimebuyers #brexit #hardbrexit #cliffedge
