Will The Property Market Crash After Brexit
The connection between the uncertainty of Brexit and a subdued property market has been the focus of much commentary in recent times. Brexit has received much of the blame for the stagnancy that we are currently seeing in the property market and many people are wishing to simply get the Brexit debate out the way. The further question of what will happen to the property market once we leave the EU has hardly been researched this is because we are dealing with an unknown but lets have a look around and try to figure out what may happen to the property market in the future and how realistic is it for prices to crash.
The Bank of England have Warned of a Property Crash
Back in September 2018 the Bank of England issued a statement saying that if we leave the EU in a “no-deal” scenario then our economy could shrink by 8% and alarmingly for home owners house prices could fall as much as 35%. It’s important to note that this was back in September last year and in the past week it seems that that the pressure of uncertainty has been eased with Donald Tusk suggesting that Article 50 could be extended by a further 12 months. In turn this should make a no-deal scenario even more unlikely as one would think that such a long extension would leave enough time to eventually achieve a deal.
RICS have Outlined a Number of Different Scenarios
In a recent post provided by RICS they have highlighted the current options that the UK face in the near term, these include:
- Theresa Mays existing deal – This deal has already been approved by the European parliament however it has not been agreed in our own Parliament.
- A New Deal – Talks of a new deal being negotiated with other parties within the house of commons. We recently had a series of indicative votes and a some of these can be further negotiated.
- No Deal – It seems that the EU have offered a time extension lifeline which should help the UK avoid this worst case scenario.
- A new General Election – The Labour Party are are trying to force another vote of no confidence if they get their own way then a general election could cause further uncertainty and confusion. Furthermore, Theresa May could call another general election, however it seems more likely that she will resign and this will cause a leadership contest within The Conservative Party.
- Another Referendum – Being touted as The Peoples Vote but doesn’t seem likely as the recent indicative votes showed little appetite for this within parliament. Many would argue that it’s only fair as people were misinformed in the original referendum but ultimately it could destabilise the ethics of our political system.
- Cancel Brexit – The European Union have given us permission to revoke Article 50 and cancel Brexit. This would probably be great news for the property market and remove the uncertainty that we are currently facing but also this option seems highly unlikely and may cause a national outcry from those who voted to leave.
When Is the Next Recession
The real question should be when is the next recession due. The Brexit uncertainty seems to be pushing us closer to a recession but even without the current situation the historical cyclical nature of when recessions occur seems to be on the Horizon. A recession would likely cause the next property crash, indeed in the last recession house prices fell on average 20% and took 6 years to recover. When looking at the timeline of the last 4 recessions (data taken from the official wikipedia page) you can see that historically a recession happens on average every 10 years as can be seen here:
July 1981 > November 1982 (Federal Reserves Monetary Policy reigning in inflation)
9 Years till Next recession
July 1990 > March 1991 (overbuilding in construction and major Interest rate hikes)
11 Years till Next recession
March 2001 > November 2001 (Over priced Tech Company’s Dot Com bubble bursting)
7 years till Next Recession
December 2007 > June 2009 (Housing bubble burst caused by sub prime lending)
It’s already been 11 years since the start of the last recession so regardless of the current Brexit Crisis the cyclical nature of boom and bust is already overdue. The Italian economy has recently fallen into recession and the same can be said for Turkey who officially fell into recession during march.
Will The Property Market Crash after Brexit?
The answer to this question depends on how long will the Brexit process take and will the next recession happen during this stage of uncertainty or after. What can be said is that it’s highly likely that the property market will crash during the next recession and that it’s also highly likely that the next recession may happen in the near future, particularly as a couple of our neighbours have already entered a recession of their own.
What Does this Mean for Those who Need to Sell Their House Quickly?
The market has already become very subdued with far fewer transactions happening between buyers and sellers. In-fact, January showed the longest time on record that it took to sell a house being an average of 77 days. One commentator within this article says that “buyers are holding back in the hope that prices will fall“. Also, if your looking to sell and move to another property with a long term view it may be best to move now, this is because if we do enter a recession the lenders make it very difficult for sellers to move, causing problems involving buyers not being able to get a mortgage and both buyers and sellers being stuck in a chain. If you wish to sell your house it may be best to move now before prices crash and property transactions become far harder to successfully complete.
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