It seems that Brexit has been around for 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 Bo’ness 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 Bo’ness (and national) property values were unfounded, although the growth of property values in Bo’ness has reduced since the referendum in the summer of 2016.
Now, it’s true the Bo’ness 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?
Bo’ness 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 Bo’ness, 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 Bo’ness homeowners might wait until 2019 to move, meaning less choice for buyers, especially in the desirable areas of Bo’ness. For Bo’ness landlords, Bo’ness 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 Bo’ness 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 Bo’ness seems fated to slow over the next five to ten years, whatever sort of Brexit takes place.
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