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

13th January 2020

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 and Theresa May stepping down in July 2019.

Boris Johnson, the latest man at the helm, now looks set to finally take the UK out of the EU.

After months of uncertainty, the landslide Conservative majority in the general election on 12th December gave Mr Johnson the mandate to get his Brexit deal through parliament.

Mr Johnson’s version of the EU Withdrawal Agreement Bill cleared the Commons unamended with a majority of 99 on January 9.

The UK was originally set to leave the EU on 29th March 2019, which was extended to 12th April, then 31st October, and finally 31st January 2020.

While it looks likely that Brexit will happen at the end of January, negotiations between the UK and the EU will continue after the UK has left the economic bloc.

There may well be continuing economic uncertainties as the UK and EU look to establish a trade deal.

Mr Johnson aims to sign a trade deal by the end of 2020, though there are doubts it can be completed in that time, and worries that the tight deadline could lead to a no-deal Brexit.

Brexit has had a negative impact on house prices in some areas, which could mean that now is a good time to buy a home.

Latest house price news:

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

  • However, people tend to overestimate the impact of Brexit on house prices, according to a survey from property buyer Good Move.

  • Annual growth was 8.2% in June 2016, but stands at 0.7% as of October 2019, Office for National Statistics (ONS) figures show.

  • Between June 2016 and October 2019 house prices increased by 9.42%.

  • The average UK property price is £232,944, 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).

  • 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?

house prices oct

House prices increased by just 0.7% in October 2019 year-on-year (the latest figure available). This represents a significant fall from 2.7% in October 2018 and 5.1% in October 2017, 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 9.42% in just over three years between June 2016 to September 2019.

The average price of UK property is £232,944 according to the latest figures. That’s up from £212,887 in June 2016.

Are house prices going up or down where I live?

While house price growth has generally been sluggish, the cost of property has still increased in most regions of the UK year-on-year.

Government data shows that, as of October 2019, there were annual price rises of 4.0% in Northern Ireland (in Q3 2019), 3.3% in Wales, 3.2% in Yorkshire and The Humber, 1.4% in the North West and 1.4% in Scotland.

However, there were yearly reductions of 1.6% in London, 1.1% in the North East, and 0.3% in the South East.

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

regional house prices oct

Looking at the monthly data, question marks over the direction of Brexit ahead of the December General Election may have affected the market.

UK house prices fell by 0.7% between September and October 2019, with the North East and West Midlands seeing the cost of property fall by 2.3% and 1.6% respectively.

It’s not surprising, therefore, that many within the property industry expressed relief when the Conservative Party won the election with a convincing majority, hoping that it would spell an end to the uncertainty that has held back the housing market.

If Labour or the Liberal Democrats had performed better in the election, we would still be debating whether Brexit was going to happen.

John Phillips, national operations director at Just Mortgages, a brokerage, said: “The political deadlock of the last few years has finally been broken.

“Whatever anybody may think of the result, we now have some clarity around Brexit at long last and that should help bring more certainty to people thinking about buying or selling homes, and to investors.”

House price predictions after 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.

There are still fears there could be a no-deal Brexit, which could potentially threaten house prices.

In December Boris Johnson vowed to complete trade negotiations with the EU by the end of 2020.

This timeframe is seen as short, which has sparked fresh fears that there could be a no-deal Brexit.

Last year credit rating agency Standard & Poor’s predicted a 10.2% yearly fall in house prices if the UK leaves without a deal.

However the Bank of England’s Monetary Policy Committee said it expects there to be a “deep free trade agreement” between the UK and EU in November.

Here are some of the latest housing market predictions:

  • A Reuters poll of 27 ‘property market specialists’ predicted house price growth of 1.0% in 2019, 1.5% in 2020 and 2.3% in 2021. Most economists expect the UK to eventually strike a free trade deal with the EU, according to another Reuters poll. (link)

  • Savills, the global real estate provider, expects average house prices to rise by 1% in 2020, 4.5% in 2021 and 3.0% in 2022, 2023 and 2024. (link)

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

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

transactions nov

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

From April 2015 to April 2016 1,328,510 residential properties changed hands.

There’s been fewer every year since, falling to 1,189,540 in 2018/2019, according to HMRC.

There were 115,590 transactions in November 2019, up from 106,360 the previous month.

Are fewer people buying since Brexit?

housing demand Oct

While the number of potential buyers has dropped slightly since the vote to leave, there are signs that demand is coming back.

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

This fell to 265 in April 2019, but bounced back to 332 in November.

Despite these steady figures, the delay to Brexit forced almost half (47%) of prospective first-time buyers to alter their plans when it comes to buying their own property, research from mortgage lender Aldermore has found, so some people have held back.

Now it looks like we’re definitely leaving the EU some commentators have predicted a New Year surge in business, so competition between buyers may heat up.

Martin Bikhit, managing director at estate agent Berkshire Hathaway HomeServices Kay & Co, said: “We expect a spike in the market in the New Year as confidence returns, and more foreign investment soon, given that sterling will now inevitably increase in value over time with investors wishing to take advantage of favourable exchange rates before this happens.”

Why house prices have stayed robust

If some potential buyers delayed buying property due to Brexit, 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 37,220 new-build completions between April and June 2019 in England, a 2% decrease from the previous quarter, and 8% less than the same quarter a year ago.

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 won’t necessarily 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.

How will Brexit affect mortgages?

BoE rate

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 November 2019 it was 1.44%.

The drop was even higher for five-year fixed-rate deals. In June 2016 the average rate was 2.54% and in November 2019 it was 1.69%.

Should I remortgage due to Brexit?

Remortgaging has been attractive for homeowners for some time because of competitive rates.

There were 65,879 residential mortgages approved during November 2019, a rise of 2% from October and 2.8% compared to November 2018, according to chartered surveyor company e.surv.

Looking at buyer habits, Brexit may be causing more people to take out a fixed-rate mortgage so they have some certainty.

In October, 97% of people who remortgaged took out a fixed rate, research from LMS shows. What’s more, five-year fixes were more popular than two-year fixes, making up 46% of loans compared to 41%.

Should I get a fixed-rate deal? And 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 years could be for you.

With a 25% deposit, a two-year fixed-rate mortgage typically costs 1.44% and a five-year fixed-rate mortgage 1.69%, 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 the scenario of 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 even 10.

Should I remortgage before or after Brexit?

It seems likely that mortgage rates will be competitive before and after Brexit, though fixing your rate 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.

“It’s good to see lenders responding to concerns over Brexit by offering competitive deals for customers,” said Trussle's head of mortgages Miles Robinson.

“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.”

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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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