How will Brexit affect house prices and mortgages? (Updated)

6th August 2019

The Brexit Effect House Prices And Mortgage Rates

The Brexit vote of 23rd June 2016 has seen off two Prime Ministers, with David Cameron leaving office one month after the vote on 13th July and Theresa May departing on the 24th July 2019. Boris Johnson is the latest man at the helm, but his appointment has sparked fears that the UK could leave the EU without an orderly deal.

The UK was due to leave the EU on 29th March this year, but our MPs have rejected the withdrawal agreement three times. Having sailed past the initial extension to 12th April, the UK is now due to leave by 31st October 2019.

But if you’re wondering when’s the best time to buy a house, thinking of moving home or comparing mortgages, now’s not the time to stick your head in the sand until Hallowe’en hoping that the clouds will have parted.

The Brexit effect on house prices may well continue for some time. And as UK average house prices tumble in some regions, now could be a good time for you to buy a house.

Latest house price news:

  • Since the UK voted to leave the rate of house price growth has generally slowed.

  • Annual growth was 8.2% in June 2016, but stands at 1.2% as of May 2019, which is the joint slowest rate of increase since January 2013, Office for National Statistics (ONS) figures show.

  • Between June 2016 and May 2019 house prices increased by 7.8%.

  • The average UK property price is £229,431, up from £212,887 in June 2016.

  • There’s been a slight drop in the number of transactions since the vote to leave, according to HM Revenue & Customs (HMRC).

  • Fewer people want to buy than in 2016, according to NAEA Propertymark, the trade group for estate agents

  • Mortgage rates have fallen on average for both two-year and five-year fixed-rate deals (75% LTV) since the vote, according to the Bank of England (BoE).

Has Brexit had an impact on house prices?

Average house price Jan 2016 to May 2019

House prices increased by 1.2% in May 2019 year-on-year (the latest figure available). While this may seem moderate, it’s actually the joint slowest rate of growth since January 2013, ONS figures show.

House prices rose by 8.2% in the 12 months to June 2016, the month of the EU referendum. But the rate of growth has tailed off since then. Prices have risen by 7.8% in just under three years between June 2016 to May 2019.

The average price of UK property is £229,431 according to the latest figures. That’s up from £212,887 in June 2016.

Are house prices going up or down where I live?

For all the talk of a Brexit slowdown, unless you live in London or the North East of England prices are still rising.

Government data shows that, as of May 2019, there were annual price rises of 3.5% in Northern Ireland, 3.4% in the North West of England, 3% in Wales, 2.8% in Scotland, 2.7% in the West Midlands, and 2.6% in the West Midlands.

Contrastingly there were yearly falls of 0.7% in the North East of England and 4.4% in London, showing just how two-speed the housing market is at the moment.

Here's how prices have changed since the month of the Brexit vote...

UK regional house price growth June 2016 to May 2019

Sam Mitchell, chief executive officer of online estate agent Housesimple, says it’s important to take into account how Brexit looks to have affected regions differently.

"Brexit uncertainty has been a drag on property prices in London and commuter belt towns, where issues around affordability were already applying the brakes to house prices which have raced ahead over the past few years and out of reach of many,” he says.

This isn’t the case in other areas where local property markets are thriving and transaction levels are healthy.

House price predictions post Brexit

With house prices falling in some areas, you’re probably wondering whether now’s a good time to buy a house.

A buyer’s market is traditionally the best for first-time buyers and people who are selling a property to buy a more expensive one – in times of uncertainty you’ve got scope to haggle for a better price.

But these are no ordinary times, and you’ll need to consider whether Brexit will affect future house prices.

What happens to the property market after Brexit partly depends on whether a deal is struck with the EU.

There seems to be as many housing market predictions as there are industry experts:

  • PWC, the multinational professional services company, says house prices will pick up from 2020 onwards if an orderly Brexit is delivered (link)

  • If there’s a no deal Brexit, the Office for Budget Responsibility predicts that house prices could fall by nearly 10% between the start of 2019 and mid-2021 (link)

  • Analysts at EY Item Club predict that if the UK leaves the EU with a deal in place, then house prices are likely to rise by 2% over 2019. However, in the event of a no-deal, it predicts house prices will fall by around 5% over the year (link)

  • Savills has suggested prices will rise 1.50% over the year (link)

  • The Royal Institution of Chartered Surveyors (RICS) has predicted a 1% rise (link)

  • Property portal Rightmove has forecast prices will remain flat (link)

Have property transactions gone up or down since the Brexit vote?

Monthly UK property transactions (Jan 2016 to Jun 2019)

There’s been a slight drop in the number of property transactions since the vote to leave.

In June 2016 there were 102,090 residential property transactions, compared to 83,750 in April 2019, according to HMRC.

There was a 13.64% drop in transactions from May 2019 to June 2019.

Are fewer people buying since Brexit?

Average number of buyers registered per UK estate agent branch (Jan 2016 - Jun 2019)

The number of potential buyers has dropped slightly since the vote to leave.

There were on average 330 people per estate agency branch actively looking to buy a new home, in June 2016, according to NAEA Propertymark.

The figure was 265 in April 2019, a slight fall from 296 the previous month.

It doesn’t help that would-be buyers don’t have many properties to choose from. The number of properties available per member branch fell to 37 in June 2019 from 41 the previous month, according to the estate agency group.

The delay to Brexit has forced almost half (47%) of prospective first-time buyers to alter their plans when it comes to purchasing their own property, research from mortgage lender Aldermore has found, so some people are holding back.

Miles Shipside, director at Rightmove, says that the closer we get to the wire without a Brexit agreement in place, the more likely buyers are to wait and see.

If demand is down so much, why aren’t house prices falling more quickly?

With so few of us looking for a new home since the Brexit vote, you’d think house prices would be falling fast as vendors tried to snap up a buyer.

But it’s not as simple as that.

Supply and demand are big drivers of house prices. For decades, the rate at which new homes are built has been too slow to meet growing demand.

A 2016 report from the House of Lords Economic Affairs select committee suggested that the UK would need to build 300,000 new homes each year in order to meet demand sufficiently to have a “moderating effect” on house prices.

But we’re still way off that target. According to the Ministry of Housing, Communities and Local Government, there were about 43,000 new build completions in the December quarter 2018, a 2% increase from the previous quarter, and only 1% above their level in the same quarter a year ago. Completions are now 11% below their peak in the March quarter 2007.

When’s the best time to buy a house - before or after Brexit?

You can never truly predict what will happen to house prices. And with the current economic uncertainty, it’s even more tricky to come up with a long-term house price forecast.

But if you’re looking to buy a property for the foreseeable future, whether the UK is in or out of the EU is unlikely to make a huge difference.

The key is finding a property that meets your needs - not just for today, but also for the future. So long as you can afford the monthly repayments, and any sudden increases in your mortgage rate, then that’s all that really matters.

Whether we have a free trade agreement with Finland or adopt a Norway-plus arrangement with our European cousins is probably going to be of little concern.

In fact, given the number of buyers who seem to be adopting a ‘wait and see’ approach, you may have less competition when buying a new home.

Boris Johnson and the spectre of a no deal

It seems preparations for a no deal Brexit have been ramped up since Boris Johnson became Prime Minister. The man himself has stressed the UK will leave the EU, “no ifs, no buts”, though he’s added that he’s not aiming for a no deal.

If we leave without a deal there’s an expectation that the UK economy would be hurt by a “cliff edge Brexit”, meaning we’d suddenly lose trade and business arrangements with EU countries.

Despite Johnson talking tough on leaving the EU with or without a deal, the stumbling block is the majority of MPs are strongly against the idea.

It’s a development that’s clearly worth keeping an eye on - as fear of a no deal Brexit could weigh on people’s confidence to buy.

How will Brexit affect mortgages?

Bank of England interest rate (Jan 2016 - Aug 2019)

To try and keep the economy moving, the BoE cut the Bank Rate (the interest rate the BoE pays to commercial banks that hold money with them) to a new record low of 0.25% in August 2016, soon after the Brexit vote.

Since then, there have been two subsequent increases bringing it up to the current rate of 0.75%.

This is important to note, because when the BoE’s rate goes up, mortgage lenders typically raise their rates by roughly the same amount. This increases many people’s monthly mortgage payments.

Fixed-mortgage rates, however, have gone down since the vote, according to the BoE. If you put down a 25% deposit on a home in June 2016, the average rate you’d pay for a two-year fixed-rate mortgage was 1.75%. In June 2019 it was 1.65%.

The drop was even higher for five-year fixed-rate deals. In June 2016 the average rate was 2.54% and in June 2019 it was 1.97%.

Should I change my mortgage because of Brexit?

Remortgaging hit its highest level in a decade at the end of 2018, according to trade body UK Finance.

This may, in some part, be down to Brexit uncertainty. As borrowers come to the end of their deals, and see a potentially turbulent time after we leave the EU, it makes sense to secure a low rate while it’s available.

However, Brexit may also be affecting the type of mortgage borrowers are choosing.

Research from Moneyfacts shows a sharp rise in the number of 10-year fixed-rate deals on the market, suggesting borrowers are keen to lock in an affordable rate for the long term.

Moneyfacts said that the number of 10-year fixed-rate deals available jumped from 16 in January 2014 to 150 in January 2019.

And it’s not just the availability of longer term deals that’s worth noting. The rates of these deals have also fallen sharply from an average of 4.61% to 3.05% over the same period, according to the same research.

Should I get a fixed rate deal? For how long?

If you want peace of mind regarding the cost of your mortgage with Brexit chaos rumbling on, then a fixed rate for five or 10 years could be for you.

With a 25% deposit, a 2-year fix typically costs 1.65% and a 5-year fix 1.97%, BoE figures show. And while this doesn’t take into consideration the cost of fees, both are comparatively low rates.

Not that you necessarily need to fix for the long-term due to Brexit, however.

In the event of the UK having a troubled exit from the EU, like a ‘no deal Brexit’, the BoE may cut the interest rate from 0.75% to give a boost to the economy – which could see mortgage rates remain low when you come to remortgage.

Ultimately it’s your call whether you want to gamble on rates staying low in two or three years’ time rather than five or 10.

Should I remortgage before or after Brexit?

It seems likely that mortgage rates will be competitive before and after Brexit, though fixing would give you certainty. But before doing so, you should consider whether it’s worth it, especially if it would cost you in the form of Early Repayment Charges (ERCs).

Regardless of what you decide, mortgage rates are incredibly competitive by historical standards.

Customer Experience Manager Dilpreet Bhagrath, says: “It’s good to see lenders responding to concerns over Brexit by offering competitive deals for customers. I’d recommend anyone approaching the end of their mortgage deal to contact a mortgage broker now to make sure they secure the most competitive deal available to them.

“Waiting around for lenders to reduce their rates further is a risky strategy. Their rates could in fact go up - we simply don’t know what’s going to happen. You're minimising the risks of losing out by acting earlier.”

Moneyfacts pointed out that competition within the market has pushed rates down, but with lenders enjoying such slim margins, deals are unlikely to fall much lower, particularly with at least one interest rate rise expected this year.

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Bear in mind: Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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