What would a ‘No Deal Brexit’ do to Leeds property prices?

As Brexit negotiations continue, the anxiety levels of the British public are rising. So far Theresa May has been unable to solve the deadlock and come up with a workable deal. This leaves the UK in an uncertain position with less than 6 months to go to the deadline in March 2019.

Warnings have been made about the possibility of a fall the pound, particularly against the Euro, and rising inflation. Worst of all, the governor of The Bank Of England, Mark Carney suggested that in a worse case scenario, the property market could lose up to a third of it’s value! Putting that into some context, this would make the property crash significantly worse than that of the financial crises of 2008 where property values fell by an average of 18%.

However, we need to consider that a fall of this scale this is very unlikely, and the press in true style jumped all of this headline in a sort of sensationalist rehash of what was termed “Project Fear”. Most experts agree a no deal or hard Brexit is likely to have some negative effect on property prices, although it is likely to be far less significant.

Many of the conditions that created the financial crises of 2007-2008 don’t exist in today’s market. A much more regulated banking sector has prevented irresponsible lending. Affordability measures for lending are much stricter now lending is judged much more closely than on affordability rather than income meaning more controlled and stable financial environment.

The triggers of increased cost of trade, inflation, unemployment, and net migration will have a knock on effect to the housing market which is also likely to result in lower volumes of transactions (the number of property sales) and increased uncertainty. This means more people are likely to stay put for now, watch and wait.

On the other hand, the lower the availability of property on the market will buoy house prices and is likely to act in keeping mortgage rates low and at a similar level we are enjoying today, provided we don’t see a significant increase in the base rate (which is unlikely to happen quickly).

The number of property transactions is a key number in assessing what impact Brexit is having so far. If we look at the number of sales since the referendum in 2016 in Leeds we see that the 2016 Referendum has done nothing to slow the market down. According to home.co.uk, in the last 10 years, within a 5 mile radius of Leeds city centre, there were 81,227 property sales. During the last 2 years, there were 25,944 sales in Leeds. That’s a surprising number. 32% of all Leeds property transactions in the 10 year period since the financial crises have been since the Referendum! Leeds homeowners and Landlords have clearly not been perturbed so far.

If we look at Leeds property prices for a moment we can see that growth has slowed however. Zoopla tells us that the average property price paid Leeds during the last 12 months was £203,941 which was 0.66% lower than than it was a year ago. Interestingly asking prices over the same period are an average of 4% higher than they were 12 months ago showing the ongoing confidence of Vendors.

Summary

In conclusion, indicators suggest that there could be a Brexit-induced correction on the horizon. Having said that we haven’t seen any real signs of that as of yet. Should house prices drop, it’s important to remember that this only really becomes a problem if you need to sell. And even in that situation, it’s not all bad (provided you have enough equity to pay off your mortgage and cover your moving costs) as your onward purchase will cost you less.

A correction could also be a much-needed boost for the buy-to-let  market which could increase the supply of homes for tenants, and keep rent levels in check. This means renters would have more money to save for their deposit to get onto the ladder themselves.

The property market runs in cycles and corrections like this are entirely normal, only their causes vary. Property ownership is a long game and the long term trend is always up. In the past 10 years Leeds property prices have increased by upwards of 20%, which is much lower than the usual capital growth of property in a decade. My advise would be not to listen to the fear or hype, and in true British style – keep calm and carry on!