What impact will Brexit have on house prices?

By : Nick Marr

As Brexit is looming ever nearer, one important question that affects nearly all parts of British society is gaining importance, namely: How will Brexit impact the UK housing market?

To answer this question, we begin with a thorough look at the market as it stands in the present moment, then factor in the multidirectional effects Brexit will have on the financial environment of the UK, and finally consider the different segments of the housing market (i.e., buy-to-let, buy-to-own, and so on). So without further ado, here is a quick yet comprehensive overview of the factors that play a role in British property valuation, pre- and post-Brexit.

The British Housing Market Today: Stability in Stagnation

It has been well-documented that the housing market in the UK has been relatively weak in the past few years, with pockets of slightly better performance centred in and around big cities such as London. However, even the nation’s capital is feeling a drop in demand and has seen asking prices reach lower levels than previously expected. In addition, throughout the country the number of new home builds have slowed, but even the scarcity of new buildings has not managed to drive prices up. Therefore, the British housing market is currently stable and somewhat stagnant. When Brexit comes, depending on the deal the British government will negotiate with its European partners, the effects can come via several routes, most important of which are immigration and foreign investment. We consider each of them below.

Immigration and the Housing Market

Any Brexit deal that limits natural persons’ freedom of movement between Britain and the EU will have a direct effect on our housing market. Estimates of many European nationals leaving their UK jobs and homes post-Brexit are difficult to narrow down, but any such exodus is bound to drive property prices down due to decreased demand. This would have much more profound effects in larger cities that are more international, such as London and Edinburgh.

Some experts have hypothesised the opposite effect, i.e., an immigration boom directly before Brexit and its inevitable restrictions take hold, which would then drive housing prices up. However, this scenario is highly unlikely given the political situation’s high volatility that does much more to push potential immigrants away than lure them in. Hence, immigration effects are likely to keep prices stable or lower them, though only slightly.

Foreign Investment in the UK Property Market Remains Stable

Apart from the free movement of people, Brexit will almost certainly affect the influx of foreign capital, which is another factor in property price formation.

For example, one area where foreign investment will likely shrink is in lower-end, older homes. Once the go-to market for first-time home buyers and first-time property investors, bottom-of-the-bill old housing will likely shrink further and further into neglect, at least as far as international markets are concerned. This may present a lucrative investment opportunity for some, but the overall trend is towards the much more coveted new housing, especially when foreign investors are involved.

In terms of higher end properties, early indications are for a continuation of foreign investment, as Britain is – for the moment at least – still seen as a relatively safe haven for big budget property purchases. This may, however, change after Brexit.

How Brexit Mixes in with Other Housing Market Factors

In the end, Brexit is only one of many price-forming factors on the UK housing market. Supply and demand, interest rates, the flow of capital, international investment… the number of variables at play are mindboggling.

However, one thing is for sure; we are entering a period of unprecedented uncertainty, and no-one truly knows what will happen to the UK housing market come Brexit. So keep an eye on house price trackers, renew your subscription to the FT, and make sure you’re prepared to act quickly.