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What will Brexit mean for house prices?

Brexit - what will it mean for your house price?
Brexit - what will it mean for your house price?

Article 50 has been triggered by Prime Minister Theresa May, but what does leaving the European Union (EU) really mean for homeowners and those trying to get on the ladder? 

For most of the country, Brexit will have little effect on house prices. In much of the UK, homebuyers are moving because they need to, because of jobs or an expanding family; this means that prices will hold up in much of those areas.

While demand remains high and there aren't enough houses being built to match it, the value of property will keep rising in most areas - albeit at a slower rate than the last few years.

Slowing wage growth and strict mortgage regulations restricting how much banks can lend may prevent prices from soaring, but there is no consensus that there will be a sudden fall in the price of property.

A buoyant property market depends on the UK's economic health, which is difficult to forecast. If the pound weakens further, inflation surges, and interest rates are raised, the capacity for house price growth would be reduced.

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Equally, if Brexit negotiations are very successful, economic growth continues to remain positive, and confidence is boosted, house prices could increase earlier and at a faster rate than initially thought. 

It's not house prices, it's transaction levels

The property market is slowing down, with the number of homes on the market at a record low, according to the Royal Institution of Chartered Surveyors. Inquiries from buyers are down too, as uncertainty over Brexit negotiations and other economic conditions cause people to sit on their hands and delay purchases. 

This also means that property transactions are slowing down: Savills has forecast that the number of homes sold will fall by 16pc in 2018 compared to this year. 

But that will not necessarily drag down prices. Savills has also said that prices across the UK will be flat this year, but in five years will rise by 13pc. This is a slowdown from previous years of huge increases, but represents a more healthy growth rate.

The triggering of Article 50 coincides with a general slowdown in the property market across London and the south of England. In the south, house price growth has become unsustainable and affordability has been crunched as the number of buyers borrowing relative to their incomes is already stretched.

This is happening at the same time as cities across the north of England are seeing house prices soar, after languishing for many years.

The impact of stamp duty

Falling prices at the top end of the market and a slowdown among the rest has been caused primarily by changes to the stamp duty system, rather than the referendum, many property experts argue. 

Stamp duty payable on average house prices

In December 2014, the tax was hiked for homes worth more than £925,000, which has led to far fewer homes being sold. Many are now improving and expanding their homes rather than moving, as the fees for doing so have risen so much.

This logjam at the top of the market is making it difficult for people to upgrade to bigger, more expensive properties. This problem was affecting the market even before the Brexit vote was announced.

The London problem... and the potential solution

The capital's prime property market has been suffering for some time, with values falling in the most expensive postcodes as sellers slash their asking prices.

The Boltons in Chelsea: one of the most expensive streets in the UK - Credit: PA
The Boltons in Chelsea: one of the most expensive streets in the UK Credit: PA

This could continue if there is uncertainty over whether London will remain a financial centre, or if there is a threat of job losses. House prices in central London are forecast to be flat for the next two years, before soaring by 8pc in 2019, says Savills. 

Immediately after the referendum, sterling sank making everything priced in pounds cheaper for those buying from abroad. If the pound continues to be low, or fall further, this could bring more foreign buyers to the capital, many of whom would buy in the priciest areas. 

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