Even the Leave campaign admits that houses might decline in value.
It is becoming a matter of consensus that house prices will decrease significantly in the event of a Leave vote at the EU referendum in June – but there is considerable debate over whether or not that is bad thing.
Following in the footsteps of the International Monetary Fund, the Chancellor George Osborne, Bank of England governor Mark Carney and the ratings agency Fitch, two more reports out today state that a Brexit would wipe value off UK housing.
One study, commissioned by the National Association of Estate Agents and carried out by the Centre for Economics and Business Research, estimates the total value of UK housing could fall by as much as £26.5bn by 2018. “Homeowners in London could lose as much as £7,500, while homes elsewhere in the UK could lose £2,300,” notes the BBC.
The research points to falling demand from overseas buyers – and also speculates that reduced demand for rental properties could prompt private landlords to sell up.
Elsewhere, the ratings agency Moody’s published a note that similarly predicted that house prices would fall in the event of a victory for the Leave campaign. Its rival Fitch had previously said that valuations could decline by as much as 25 per cent.
Here is where the narrative is open to interpretation, however.
Mostly, such forecasts are presented as a cautionary tale for homeowners, but Moody’s is clear that the trend would be good news for first-time buyers. Gaby Trinkaus, a vice president and senior analyst at the agency, said prospective owners would “benefit from lower competition for housing, as house price and rental inflation would slow down if immigration is curbed”.
Fitch had similarly indicated that a correction in prices might not be so bad, as the fall in prices would merely bring average property values back down to a “sustainable” level.
A spokesman for Vote Leave admitted that house prices could drop but echoed the potential benefits for many, particularly younger, households. “The biggest pressure on housing supply is immigration which has made buying your first home and even renting unaffordable for many,” said Matthew Elliott, the campaign group’s chief executive.
Not everyone is convinced. Osborne said that while house prices would fall, thereby hurting homeowners, benefits for new buyers would be offset by a sharp rise in interest rates in the years after the vote to combat an expected surge in inflation.
Separately, the National Association of Estate Agents warned of a skills shortage in construction if EU workers depart en masse, which would threaten future housebuilding. “We simply wouldn’t have the resource to put the bricks and mortar together,” said managing director Mark Hayward. “It [a Leave vote} has the potential to have a very damaging effect on the future housing market.”
House prices: What will your home be worth by 2030?
18 May
The already squeezed affordability in the housing market could get even worse in the coming 15 years if current trends persist, according to the estate agency Emoov.
The company has calculated that across Britain the average house price rose by 84 per cent over the 15 years between 2000 and 2015. It has extrapolated the effect on valuations in each region and major city if the same rise were to be seen equally across the country over the same period to 2030.
In short this would be “extremely worrying” for new buyer prospects, says Emoov chief executive Russell Quirk. It would result in the average London home rising above £1m, the average in many areas of England hitting £500,000, and even the typical buyer in Wales and Scotland having to part with around £300,000.
Such forecasts are highly questionable, not least because rises have not been equal in all regions in the past decade and a half. There is also considerable doubt that a housing market that Quirk describes as even now in the grip of “artificial inflation” could sustain such persistent increases.
Nonetheless, Emoov’s forecasts do provide a stark reminder of just how rapidly prices are rising and an extreme example of what could happen if no action is taken to moderate growth. So what might house prices be in your area in 15 years’ time?
London would continue to lead the way with the average price in the capital as a whole – and in 14 of its 32 boroughs – breaking through £1m. The most expensive houses would continue to be found in Chelsea and Kensington, where the current £.19m average would surge to £3.4m. A home in the most affordable borough of Barking and Dagenham would set you back just over £453,000.
This latter is one of only four areas in which the average house would come in below £600,000, the current limit for the first-time buyer-focused Help to Buy scheme. The other three would be Bexley, Croydon and Newham.
England would remain the most expensive of the constituent nations, with house prices rising above £457,000 on average and hitting £500,000 in no fewer than 12 counties. This includes all the home counties bordering London, as well as Oxfordshire, Cambridgeshire, Hampshire, East and West Sussex, Dorset and Rutland.
In Wales the average price would be more than £307,000 – “expensive, but still £150,00 cheaper than England”. The most costly area, the border county of Monmouthshire, would see an average price of £442,141. The cheapest in the country would be the cheapest in Britain overall: Merthyr Tydfil in Wales would have an average price of ‘just’ £178,745.
Scotland would remain the most affordable region, with an average property value of around £297,000. The stand-out housing market in Edinburgh would by 2030 boast an average price of £432,468, while the most affordable homes in North Lanarkshire would be worth £200,600.
House prices could ‘crash’ by 25% after Brexit
17 May
Fitch, the credit ratings agency, is the latest to warn of the potentially dramatic effects of a vote to leave the European Union on UK house prices. It reckons a Brexit could wipe as much as 25 per cent off the average property value.
In the wake of similar warnings from both the Chancellor George Osborne and the International Monetary Fund chief Christine Lagarde, the agency says that an Out vote followed by “fractious” trade negotiations with the bloc would precipitate a worst case scenario. This would include a slump in the pound, an eventual rise in interest rates and a major correction in the housing market.
Echoing the Bank of England’s predictions, Fitch says the pound could potentially slump 30 per cent, pushing up consumer prices. In turn this would mean that after initially cutting interest rates to stimulate demand, the BoE could be forced to raise borrowing costs to three per cent by 2019 in order to combat runaway inflation.
“Lower growth and higher interest rates could trigger a sharp fall in house prices,” it concludes, according to the Daily Telegraph.
The scale of the worst case “crash” in prices is in part the result of how overheated UK property prices already are, however. Fitch says that “house prices are currently up to 25 per cent above ‘sustainable’ levels in relation to disposable income” and that a post-Brexit slump could simply “result in house prices falling towards their sustainable level”.
Writing separately in The Telegraph, Jeremy Warner comments: “There are few things likely to turn me into a Brexiteer, but the prospect of falling house prices might just do it… Unless you are a buy-to-let landlord – a tiny minority of the population – or about to sell up and leave the country, the price of houses doesn’t matter.
“Indeed, if prices were a bit cheaper, and therefore more affordable, I would wager that most people would be a good deal happier.”
There is evidence to suggest that the EU vote is already acting as a brake on the hitherto stellar house price growth in the UK. The Financial Times reports that estate agents such as Foxtons, Countrywide and Savills have “warned that property transactions are likely to fall in the second quarter as potential buyers await the outcome”.
The property firm Lonres told The Guardian that 39 per cent of agents working in London’s most expensive neighbourhoods had seen a “fall in European buyers in the last three months”. This has contributed to a drop in prices in the capital’s luxury postcodes of as much as 12 per cent compared to last year. Overall prices across London have risen by more than eight per cent.
House prices for first-time buyers soar after buy-to-let ‘feast’
16 May
Asking prices for homes targeted at first-time buyers soared at a far faster rate than the wider market in April after a “feast” for buy-to-let investors in recent months, according to the property website Rightmove.
Average prices for properties coming on to the market in England and Wales with two bedrooms or less rose by more than six per cent from March to April. The figure compares to an increase of just 0.4 per cent across the market as a whole, according to The Guardian. First-timers need to pay £194,224 to meet the asking price of the average smaller home.
Claims that these numbers are being propelled by an out of control housing market in central London are not true in this case, as the capital’s inner regions are not included in the calculations.
Prices may still be inflated, Rightmove admits. “It remains to be seen if these prices can be achieved and there may be some over pricing in the market,” its director Miles Shipside said. He added that there was a general sense of higher-quality properties coming on to market, which would also help to drive prices higher.
Shipside’s central claim is that the huge leap in the listing price of smaller homes in April is due to the rush of landlords buying in the preceding few months, as investors sought to beat a new three per cent stamp duty surcharge that came into effect on 1 April.
“Buy-to-let investors have had a bricks and mortar feast between the chancellor’s announcement in November and the tax deadline at the end of March, and the result is a famine of suitable property and higher prices,” he explained, according to the International Business Times.
Things may not improve quickly for new buyers, either. Johnny Morris, research director at estate agents Countrywide and Paul Milson of the Leaders estate agency in Epsom, Surrey both told The Guardian that landlords were not being put off by the new stamp duty. Instead they were looking to buy smaller homes for which rental demand remains high.
Not all areas are seeing first-time buyer asking prices rise. Llandudno in north Wales has seen prices fall by 7.5 per cent over the past year.
SOURCE: TheWeek.co.uk
