House prices: the Brexit effect

We’re now six years in to what can be termed the ‘Brexit period’ – the time between David Cameron’s fateful announcement of his clear intention to hold an EU referendum in February 2013 and now.

Brexit, markets and house prices

Markets hate uncertainty and even more so, political unrest. Entering into the abyss of a political, economic and social dynamic that is new and uncertain would be bad enough however add to that a multi-factional disagreement within our political class and with increasing anxiety, protests, u-turns and fibs – coupled with attempts to overthrow the Prime Minister herself, and what you have is a cocktail of Kryptonite, nitro-glycerine and gunpowder fuelled, of course by the oxygen of a relentless, headline grabbing media.

Logic and history tell us that. as a consequence of the foregoing, the UK should be on its knees with begging bowl in hand asking the IMF in Oliver’esque terms for ‘more please’ to prop it’s coffers up. A familiar situation if you’re a student of Greek, Portugal or Irish 21st century financial history (and they happen to be in the EU, not trying to leave it).

In early 2016 the EU referendum campaigns started in earnest and, as we all now know, descended into mud-slinging and animosity pretty much immediately. Neither side covered themselves in reputational glory with their claims and prophecies. Indeed, the electorate were bombarded with ever more fantastical claims from bot the Leave and Remain camps as to what would happen of the UK voted to exit the EU or to remain within it. Examples on the Leave side included that Turkey would overwhelm our shores; the British Armed Forces would be embedded into an EU Army over which we would have no control; and that the EU’s unelected autocrats within the European Commission and the Council of Ministers, were planning the ultimate federalisation of Europe complete with a mandatory single currency and, perhaps, the dissolution of the UK Parliament as ‘surplus to requirements’.

Most famously though, was that bus. The bus that boldly touted that £350million each and every week would be ploughed in to our beloved NHS from the savings made from no longer having to make our EU annual contribution. Take back control. Ahem.

On the Remain side, a collective of Europhile big hitters proclaimed financial meltdown if we were to be audacious and ‘stupid’ enough to choose to leave.

Mark Carney, the Canadian Bank of England Governor expressed, in quite certain terms, that Britain would see a) a rise in interest rates; b) an immediate recession; and c) sky high unemployment.

George Osborne contributed his authoritative view that house prices would sink by a very precise 18% straight after any vote to leave.

And David Cameron, in full ‘running scared of UKIP’ mode, listed the banks, hedge funds and manufacturers that would soon abandon our shores and relocate to Frankfurt/Lisbon/Dublin/Amsterdam.

Project Fear was in full flow on each side of the debate. And ever more ridiculously to the extent that Armando Iannucci would be most proud.

The resulting turmoil caused by the daily one-upmanship, was enough to scare investors, consumers, companies and home buyers witless. Cue mass anxiety and ultimately what should ordinarily be the biggest sitting of fences that the economic world had ever seen. A paralysis of epic cryogenic financial proportions. The greatest of great depressions.

Except, that hasn’t really happened.

You have to give it to our politicians. Handed the baton of delivering the result of the EU referendum – to leave the union; the ensuing two years post-Article 50 should have been enough time to get behind the outcome, to prepare and to carry out the wishes of the slim majority of the populous that had said ‘I’m out’.

Instead, a political pantomime ensued as our MPs transformed into rabbits frozen in the gaze of global headlines, unable to agree on anything but adept at disagreeing with everything, lampooned by the world at our crass inability to make even one solitary decision in the process to withdraw from membership of the European Union.

This further pouring of salt into the wound of a divided, bitter country again should have been the final nail. Indeed, metaphorically, the coffin itself should by now be irreparably cremated and the ashes swept out to sea on a boat that sinks into a three-mile deep trench in icy waters. Then eaten by a shark.

Housing market is resilient

Instead, the housing market has proven mighty resilient. It’s been battered for sure in the past few months with the generic UK growth rate at a six year low and prices in the south-east dropping some 1.8% year on year (ONS) with London worse, falling 3.8% in the past 12 months. This is not good. But it could and should be so much worse, shouldn’t it?

House prices are in positive territory everywhere else. The east, the north west, the east midlands, west midlands and the south west are shrugging off any sign of Brexit blues – especially the north west with values up 4% year on year – all contributing to an overall picture that shows ‘UK average house prices up 0.6% year on year’, according to the latest Government index. (PS. Ironically it appears that Leave voting areas are proving more resilient than Remain – a psychological advantage maybe?).

Who would have thought, against a backdrop of political Armageddon, that house prices would actually be higher now than this time twelve months ago? In fact, in June 2016 at the time of the public vote the average UK house price was £213,927. Now? It’s £226,234. That’s a hike of 5.75% in spite of everything.

Tellingly, transactions have also fared much better than the media would perhaps have you believe. The recent annual average number of properties sold is c.1.2m. That’s the same as 2015, 2016, 2017 and so on.

But hasn’t London been hit hard?

Yes,it has. Especially prime London (sales above £5m) and which seems to be the stat that hits the headlines the most and, just perhaps, is what distorts the true picture overall. Whilst London is an important market, Prime itself accounts for little over 2% of national transactions and is therefore not the barometer of everywhere by any stretch. In any case, there’s a compelling argument that it’s not Brexit at all that is diluting the luxury end of the market but the effect of successive stamp duty hikes on higher priced home purchases – a 12% levy above £1.5m now.

So, Brexit has had no effect on the UK housing market? No, we’re not saying that at all. But what the evidence suggests is that it has been rather Teflon coated in the face of significant external heat. Accordingly, we believe that there is significant optimism for a post-Brexit market and that once some semblance of certainty and political sensibility returns, property transactions and prices, fuelled by cheap money, cultural demand and a lack of supply, will resurge.