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What a no-deal Brexit means for house prices

Leaving EU without a deal will do severe damage to UK property market. Photo: Getty

With the prospect of a no-deal Brexit hanging over the country as we hurtle towards the latest deadline of 31 October, many homeowners are nervous about what it could mean for house prices.

At least two of the frontrunners in the Conservative leadership race to replace Theresa May as prime minister—Boris Johnson and Dominic Raab—have said they are willing to leave the European Union without a deal, whatever the economic cost of that decision may be.

Bank of England forecasters say a disorderly Brexit—and no deal would be the most disorderly Brexit possible—could crash house prices by as much as 30% over three years in its worst-case scenario.

Why? Well, the impact of no-deal Brexit would, in the short-term at the very least, likely be extremely damaging to the UK economy.

This is because it would disrupt trade with the European Union, which counts for half of UK’s total trade, by erecting barriers such as tariffs and customs checks.

Britain’s economy would quickly enter a recession. The Treasury’s economic forecasts for a no-deal Brexit say, in the long-run, GDP could be as much as 10.7% lower.

Even in the best Treasury case for no deal, GDP would be 6.2% lower over the coming years, as it sucks demand out of the economy.

Sterling would crash, raising the cost of imports, increasing prices on supermarket shelves, and triggering a wave of job losses as businesses with narrow margins go under, unable to cope with higher costs.

The financial system would seize up in a similar way to the 2008 credit crunch. Lending would tighten because banks would not want to expose themselves to any more risk.

Interest rates would rise sharply in line with the increase in risk to lenders, and also in response to base rate hikes by the Bank of England as it seeks to protect the value of sterling.

“The weakness of output and incomes, alongside rising interest rates and a pronounced tightening of financial conditions, results in sharp falls in some asset prices,” the Bank of England said in its modelling of a no-deal Brexit.

Many homeowners could also find themselves in negative equity, unable to sell up and move, further reducing demand in the property market.

Put simply, all these factors—a recession, job losses, higher interest rates, less mortgage lending, and so on—would seriously curb demand for house purchases.

And less demand means lower prices.

It would, forecasts suggest, be a long road to recovery for house prices should we crash out of the European Union without a deal.

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