Theresa May and EU officials are scrambling to cobble together a finalised Brexit deal in time for Sunday’s summit of European leaders.
The 585-page draft Brexit agreement contains a number of thorny points yet to be firmed up, including the transition period, the Irish border question and Britain’s future access to global financial markets.
An issue less discussed in the last few days is what impact each Brexit scenario, and even a Conservative party leadership contest, could have on the country’s housing market.
Turbulence: Theresa May and EU officials are scrambling to cobble together a finalised Brexit deal in time for Sunday’s summit of European leaders
Here, Paul Smith, chief executive of estate agency Haart, discusses what a good deal, no deal, Conservative party leadership challenge and an extended transition period for Brexit could mean for homeowners, sellers and buyers across the country.
In Mr Smtih’s view, an extended transition period poses the greatest threat.
Scenario 1: Leave the EU with a good deal
Haart’s Mr Smith said: ‘Although the level of activity our branches are experiencing on the ground continues to defy Brexit doom-mongers’ expectations, we could expect a super-charged property market in 2019 if a positive Brexit deal is agreed.
‘In October, the number of people registering to buy a home was up 37% on the year, however many sellers are holding off as they wait for greater clarity from the Government.
Trouble ahead: In Mr Smtih’s mind, an extended transition period poses the greatest threat to the UK’s property market
‘With a strong deal in place, confidence would fuel the market upwards, turning instructions into transactions. We would expect an uplift in transactions of 10% to take place in the second half of 2019, with an increase in buyer demand leading to slight price rises thereafter.’
Even in the event of a hard Brexit, Mr Smith said it would be ‘very unlikely’ that house prices would fall as sharply as they did during the credit crunch.
Scenario 2: Leave the EU with no deal
Mr Smith thinks a no deal Brexit would lead to a ‘short term blow’ for the country’s property market.
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.
Capital issues: Property prices in London fell by 0.3 per cent in the last year, the ONS said
‘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 is also extremely likely 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.’
Scenario 3: Theresa May’s leadership is challenged
It has been a tumultuous few weeks for Theresa May, and while it remains unclear whether the 48-letter threshold has been reached to trigger a vote of no confidence, a leadership challenge could, at some point, kick off.
Mr Smith said: ‘Political stability is crucial for a thriving housing market – and for this we need a stable government.
No confidence letter: Jacob Rees-Mogg announced that he had sent his letter to the chairman of the 1922 Committee
‘If a leadership bid was triggered we would risk creating further uncertainty in the market. In this instance we’d undoubtedly see more homeowners holding off listing their homes, resulting in a drop in transactions of roughly 2% and potentially house price dips. Unsurprisingly, I would expect London to be hit the hardest.’
Earlier this month, figures published by the Office for National Statistics revealed that property prices in London fell by 0.3 per cent in the last year.
Scenario 4: Extended Brexit negotiation period beyond March 2019
While a ‘No Deal’ scenario could be damaging for the property market, Mr Smith thinks an extended period of negotiations to thrash out a final deal could be even more detrimental. The key problem with this scenario is uncertainty.
Mr Smith said: ‘Our latest data shows that house prices across England and Wales have fallen by 0.8% on the year, highlighting the adverse effect uncertainty continues to have on the housing market.
‘Extending negotiations would only encourage further uncertainty, resulting in a delay among buyers and sellers. Should this continue throughout 2019, we could expect transaction volumes to dip by as much as 20%, further stunting any opportunity of economic prosperity at a time when we need it most.’
How is the property market holding up now?
Charting transactions: Total UK residential property transactions, according to HMRC
Uncertainty appears to reign supreme at present. Mortgage repayment costs are increasing, with further interest rate rises on the cards next year.
Meanwhile, in many areas, a shortage of homes coming on to the market remains a problem, with an increasing number of households opting to stay put in their current homes and renovate them rather than move.
In its latest research, Haart found that the average cost of a home has fallen by 0.8 per cent in the last year, to around £220,535. Month-on-month, prices slipped by 1.4 per cent in October. Across the year, the group’s transaction levels increased by 9.7 per cent.
With demand outstripping supply in many areas, prices will ‘continue to hold up’, irrespective of which Brexit scenario emerges, Haart said.
Separate figures from HM Revenue & Customs published today reveal that property transactions increased by 0.9 per cent between September and October. This month’s seasonally adjusted figure is 1.3 per cent higher compared with the same month last year.
Mike Scott, chief property analyst at Yopa said: ‘HMRC figures show a welcome upturn in housing market activity in October.
‘The number of houses sold was 1.3 per cent higher than last October, the first year-on-year increase this year.
‘This suggests that the market is now emerging from the slowdown that we have seen in the year to date. This is too late to have much effect on the total house sales for the year, which we expect to be about 3 per cent down on 2017, with a little under 1.2 million homes sold.
‘Recent figures from UK Finance show that the number of mortgage approvals is still slightly down on 2017’s levels, so the upturn in the number of houses sold is unlikely to be dramatic or sustained, unless we see a significant influx of cash buyers.’
Kevin Roberts, Director, Legal & General Mortgage Club, said: ‘The mortgage market may well be in a strong position; however, we continue to see a property market telling the same story – one of stagnation.
‘Whilst there was a slight uplift, ongoing uncertainty around Brexit and barriers like Stamp Duty are clearly having an impact, forcing many existing homeowners to ‘improve, not move’.
‘Last month’s Budget was certainly a step in the right direction with more good news for first-time buyers with the Stamp Duty exemption to Shared Ownership properties, but we can’t forget about those higher up the property ladder. Extending this break to last-time buyers would free up larger houses for growing families, providing the next generation of homebuyers the opportunity to step onto or even up the property ladder.’