The home buyer and seller’s guide to Brexit
Thinking of buying or selling in the run up to Brexit? We look at house market predictions with working examples of whether you should buy or sell now, or wait.
Do we really need another article about Brexit?
Every day our conveyancing solicitors are by home buyers asked about the potential impact of Brexit. Understandably buyers are looking for a degree of reassurance.
Such reassurances are hard to give.
In the following article we look at the various expert predictions and convert these into real numbers to help you decide whether to buy now or wait until the Brexit dust has settled.
What are the key home buyer anxieties?
House prices are an emotional string that anyone with a Brexit agenda can easily pluck. Predictions tend to be based on fear and centre around employment, interest rates and house prices.
Many potential home buyers feel that they are stuck in limbo, needing to move home but fearful of a post-Brexit market crash.
The main concerns for anyone buying a house in a period of such uncertainty are:
- Will house prices fall or increase?
- Will interest rates increase?
- Should I incur moving costs (and a new mortgage) in such uncertain times?
Will house prices fall or increase after Brexit?
It seems as though all possible outcomes are being predicted for all possible Brexit scenarios i.e. no deal, bad deal, good deal and extension of Article 50.
What do the experts say?
Define “expert”. It is hard to think of a more expert polarising issue than Brexit and that includes the potential effects on the housing market.
Bank of England governor Mark Carney has predicted that the economy will suffer. He predicts that the cost of living, interest rates and unemployment will all increase and house prices could fall by as much as 35% in the event of the UK ‘crashing out’ of the EU.
Of course this is a heavily caveated prediction from an institution whose recent prediction accuracy is not good.
On the other hand, a recent property forecast from Savills foresees a 15% increase in house prices in the 5 years following Brexit. But then they would be bullish - they are estate agents.
In fact house prices predictions are as divisive as the referendum itself.
So will prices increase or decrease?
House prices may increase or decrease. But then this is the same quandary facing anyone buying a home at any time in the past.
In August 2018 the Bank of England Base Rate is 0.75%, so if rates change they can only really go one way.
Most property pundits are predicting increases. Certainly the US (who has followed a similar post 2008 strategy of quantitative easing) has seen a number of increases over the past couple of years.,
Experts seem a little more aligned on this issue, most predicting gradual increases in the base rate over 2019 and 2020.
Differences in opinion centre mostly around how soon and how fast increase will occur.
Should I incur moving costs (and a new mortgage) in such uncertain times?
Since the EU referendum, economic growth has slowed. Some industries have already felt the effects of this, but the overall effect on employment rates has been small.
Quite what will happen after Brexit, whether good deal, bad deal, or no deal, is as hotly debated as house price predictions.
However, unless you work for a company that is moving it’s operation abroad, it is generally thought that the impact of leaving the EU (if any) on the job market will take years to manifest.
A conveyancing solicitor can provide impartial advice as to the legal condition of your planned purchase, but they cannot advise on financial matters. Even your mortgage lender or broker is unlikely to offer much guidance on this point.
Ultimately, you are likely to be the best person to predict how an economic downturn could affect your employment, and hence how much of a risk moving house really is.
I have found a property to buy, should I hold off until after Brexit?
Brexit presents a range of risks to home buyers.
Some of these risks, like interest rates rising or house prices falling, are relatively easy to plan for. You can foresee what effect an X% rise in the base rate, or a Y% fall in the average house prices will have on your life and your finances.
However, there could also be “unknown unknowns” too. We are facing unprecedented and potentially volatile changes, and it is impossible to account for every outcome.
It is simply too early to tell whether the uncertainty presents an opportunity for a brave home buyer to grab a bargain before confidence returns and rates rise, or whether prices could fall much further in the coming months and years. This could leave some in negative equity.
Should I sell and move into rented accommodation before Brexit?
For those predicting a substantial post Brexit fall in property prices. it might be tempting to sell up and move into rented accommodation. Then, if and when prices bottom out, one could buy a better house for the same money or a similar house for less.
Obviously this approach only works if prices fall far enough to offset the selling and buying costs (agents fees, stamp duty etc) and the cost of renting (less what you would have paid in mortgage interest).
If we take the average house price of £228,000 (UK HPI Jan 2019) and imagine someone selling, renting for 2 years before buying a similar home:
If house prices fall
|% fall in house prices||-5%||-10%||-15%||-20%|
|Buying price (2 years later)1||£214,767||£203,464||£192,160||£180,857|
|Rent (2 years)4||£26,450||£25,772||£25,094||£24,416|
|Mortgage payments avoided5||-£9,043||-£9,043||-£9,043||-£9,043|
If house prices increase
|% increase in house prices||0%||5%||10%||15%|
|Buying price (2 years later)1||£226,071||£237,375||£248,678||£259,982|
|Rent (2 years)4||£27,129||£27,807||£28,485||£29,163|
|Mortgage payments avoided5||-£9,043||-£9,043||-£9,043||-£9,043|
1 Purchase price of a similar property 2 years later
2 Moving costs for buying and selling, including agent's fees, conveyancing, removals, surveys, mortgage fees etc
3 Stamp duty calculated on the new property's value
4 The cost of renting a property for 2 years (based on 6% yield p/a of the median between selling and buying price over 2 years)
5 What would have been paid in mortgage repayments (base on an average 5 year fixed rate of 2% p/a)
6 The fall in price, less the total cost of selling and buying
We can see that prices would need to fall by approximately 14% to break even. Of course none of this takes into account the huge hassle factor and stress of moving.
House price checker
For most of my property career, naysayers have predicted an impending market collapse.
Yet supply and demand and any number of other underlying factors have seen decades of year on year growth. Even the collapse of the financial markets in 2018 didn’t dampen growth.
Most would agree that, in the long-term at least, bricks and mortar are always a safe bet. Even if prices do dip in the months following Brexit, this will probably be accompanied by an interest rate hike.
The stock property market wisdom has always been to live your life and take a long term view.
Finding a property to buy usually means that you have already ticked a number of boxes such as proximity to work and schools, affordability, desirability and so on. The chances of finding a similarly suitable property in the 6 to 12 months post Brexit may be limited.
You might therefore consider a long-term fixed mortgage (many lenders will fix for up to 10 years) and offset any (potential) short term market dip with lower mortgage repayments.
If prices don’t drop but interest rates increase - you will be quids in.