Preparing for the Post Brexit Property Landscape
If Brexit leads to an economic downturn, there could be severe implications for the housing market. However, that does not equate to bad news for everyone.As the UK government and the EU continue to dance around one another in the Brexit negotiations, it is becoming clearer by the day that when 29 March comes around, we need to be prepared for stormy financial waters. In the world of stocks, shares, Forex and so forth, that’s one thing. Traders in these fields thrive on the ups and downs and being on the right side of a major swing in value is all part of the game.
As far as property goes, however, it is a different matter. The vast majority of people who own, or are considering buying, property are not expert investors or wheeler dealers in the square mile. A slump in the property market could hit everyday people right where it hurts. At the same time, however, it could present some awe-inspiring opportunities for those in a position to take advantage of 800,000 pound mortgages to catch those seven-figure value homes as their price tags plummet.
The view from the City
Four months ago, the Governor of the Bank of England ruffled some feathers by predicting a worst-case scenario in which prices would fall by some 36 percent after Brexit. Of course, this was in what was seen as the astronomically unlikely event of Brexit coming around with no deal on the table.
The BoE’s worst-case scenario has not shifted between September and today. It is worth noting that 36 percent sounds immense, but this is exactly what happened to the market in the recession of the early 1990s. In fact, back then, property within the city fell even more, by around 47 percent.
No repetition of the 1990s crash
But while there is every possibility that house prices will fall in value by a similar amount to that seen a quarter of a century ago, that does not mean we will face the same consequences as those dark times, with homeowners facing impossible payment demands and desperately posting the keys to their homes to the banks in the hope of clearing their mountains of liabilities.
Back then, the property market was very different to the one we see today. Far more homes were mortgaged – 42 percent in 1991 as opposed to 28 percent in 2017, and interest rates were far higher.
Today, we are older and wiser. Measures introduced in the wake of the 2008 crisis mean that there are much fewer high-risk mortgages out there, and the market is more resilient than it was in the past. Furthermore, there is not the same inflation problem today that there was in the early 90s, and even if, as Mark Carney warns, Brexit leads to an inflation spike, the BoE will almost certainly implement measures such as quantitative easing or reducing the base rate to counter it.
Opportunity as well as threat
The other important thing to keep in mind is that there are two sides to every coin. While those who own large value houses might be preparing to batten down the hatches, for those ready to invest, 2019 could present some amazing opportunities to own some luxury real estate at prices that would have seemed inconceivable a year ago.