Unless you’ve been hiding under a rock for the past three years, since the EU Referendum in June 2016 when the UK voted to leave the European Union (EU), you’ll have been inundated with news headlines predicting UK house price crashes, interest rate rises and a plethora of Brexit woes. So, who are we supposed to rely on to provide good advice in uncertain times? The newspapers, the head of the Bank of England, the Government? How do we know when is a good or bad time to invest in the UK property market? Indeed, could now be the perfect time to invest while house prices are ‘subdued’? To find out, we decided to delve deeper into the minefield of house price rumours, facts and statistics…
There’s certain to be uncertainty ahead… the house price conundrum
When the Bank of England governor Mark Carney presented a chilling (leaked) prediction to the cabinet last year that house prices might fall 35 per cent following a “no-deal Brexit”, UK homeowners and property investors alike must have been quaking in their boots.
However, despite a lot of negative headlines, there are no signs that the floor is falling out of the UK property market. Current house prices may be slightly subdued, but they are stable, and, in some regions, house prices are reported as rising.
The outcome of Brexit on house prices is likely to be nowhere near as significant as a 30-35 per cent drop, in fact Parliament has made it very clear it would block Carney’s ‘worst-case scenario’ of leaving the UK without a deal, and if the UK gets a negotiated deal with the EU, then it is highly likely transitional arrangements – where current trading arrangements between the EU and UK continue – would apply, thus providing some stability to the market for a further year or so.
UK house prices ‘in the family way’
The EU’s six-month Brexit extension to October has coincided with what is usually the busiest time of year for property listing and purchases. While it is only a postponement, it may relieve some of the short-term uncertainty, and so it arrives at an opportune time for the housing market. To back-up this sentiment, Rightmove reports this month’s (April 2019’s) 1.1% +£3,447 uplift in listed house prices is the highest in April since 2016 and the largest monthly rise since March 2018. The property portal has also observed the family home sector outperforming other sectors in key metrics as it sees family housing needs outweigh any market uncertainties.
Miles Shipside, Rightmove director and housing market analyst, observed: “No doubt there are still a lot of twists and turns to come, but this extension could give hesitating home movers encouragement that there is now a window of relative certainty in uncertain times. We are not anticipating an activity surge, but maybe a wave of relief that releases some pent-up demand to take advantage of static property prices and cheap fixed-rate mortgages. This demand is clearly there as March was Rightmove’s busiest ever month with over 145 million visits to the site.”
House prices - a double-edged sword
Even in the unlikely event that house prices were to fall dramatically, it wouldn’t be a complete disaster for the UK property market, as TV presenter Martin Lewis of Money Saving Expert fame explains: “House prices are a double-edged sword” he said: “if prices drop, it means they [houses] become more affordable for many not on the housing ladder. Those who already own houses don’t lose out in the short term as any price drops are just on paper.”
Lower prices would also make UK property more attractive to overseas investors, which wouldn’t be a bad thing while UK buyers are dragging their heels due to Brexit uncertainties. The way we see it, the only possible losers from a significant house price drop would be those looking to downsize; those looking to sell and not re-purchase or those using their equity to release extra cash… In a market such as this, landlords shouldn’t necessarily suffer either; they could continue to rent their properties out or redevelop, sell and purchase anew.
Recent property market uncertainty has also brought other unexpected benefits too… Despite warnings from the Bank of England governor that inflation rises would mean a hike in interest rates, as uncertainty lingers around Brexit, the Bank of England base rate has only risen marginally (+0.5% since its lowest ever value in August 2016) while mortgage rates have remained attractively low.
House prices are ‘plummeting’, or are they?
Adding further drama and uncertainty to the UK property market are all the conflicting headlines surrounding UK house prices. Headlines claiming prices are ‘subdued’, ‘plummeting’ or ‘dampened’ are based on a whole plethora of monthly indices produced by industry heavyweights such as the Land Registry, mortgage lenders and the property portals. However, no two property price indices produce the same results; these discrepancies in statistics are because the organisations producing their reports use different datasets (such as house sales, mortgage approvals or property listing prices) and sample sizes to produce their calculations and conclusions. In fact, all the indices have their own shortfalls for example, the mortgage lender indices only include that lender’s statistics so don’t provide whole of market insights. Even one of the most comprehensive residential house price reports, The UK House Price Index (HPI), a joint production by HM Land Registry, Land and Property Services Northern Ireland, Office for National Statistics and Registers of Scotland has its shortcomings in the fact that it’s only published quarterly and there can be a sizeable delay before transactions feed into the index as house sales only appear in the UK HPI once the purchases have been registered, so any market changes may be slow to show emerging trends.
Furthermore, indices can only inform about average prices in an area. The price a home will sell for depends on its individual appeal, for example, location, what a buyer is prepared to pay for it and the price the seller is happy to accept.
In summary, these indices are probably quite useful to compare against the previous report from the same source but should not be used as like-for-like comparisons or as a sole reference when deciding whether to invest in the property market, while dramatic newspaper headlines should definitely be taken with a pinch of salt as they are designed to capture the reader’s attention (and clicks), and a shock headline will do this for sure!
Is it time to take the plunge?
During a Facebook Live chat, Martin Lewis was recently asked; “If you wanted to move house next year, would you put it off a and wait a few years because of the Brexit uncertainty?”
Lewis replied: “If you want to sell your house and you get a decent offer that enables you to do what you want, maybe buy a new house somewhere else or maybe store the cash, then do it.
“Yes, you may look back in the future and say if only I had waited it might have been better or thank heavens, I didn’t wait it would have been worse, but you can’t know that.”
At the end of the day, if you want to invest in a UK property, there are plenty of reasons to take the plunge now with low mortgage rates and house prices likely to be negotiable. Also, as the old adage goes, ‘there’s no time like the present’, so what are you waiting for?
