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How will Brexit affect the property market and impact prices

  • COVID-19 pandemic increased uncertainty over the UK property market’s outlook after January 1st 2021
  • Rishi Sunak’s stamp duty holiday acted like rocket fuel for UK housing prices
  • UK citizens with second homes in the EU facing complications post-Brexit
  • Average property prices in the UK could decline by as much as 20%

The UK housing market could be heading for a perfect storm in January 2021 in the wake of the COVID-19 pandemic and with the prospect of a no-deal Brexit increasing.

British Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen met recently over dinner as last-ditch efforts to break the Brexit impasse but failed to unlock trade talks.

Both have since confirmed that significant differences between the EU and the UK remain, namely on issues of fisheries, future governance and the so-called level playing field.

According to officials, the probability of no-deal Brexit has increased, and the UK is now more likely to leave the European Union without a free trade agreement on December 1st and enter 2021 on World Trade Organisation (WTO) terms with the bloc.

Pound Sterling (GBP) is feeling the brunt of the no-deal risk, having suffered steep declines against all its G10 currency rivals, including the euro (EUR) and the US dollar (USD).

The British pound to US dollar (GBP/USD) exchange rate has slumped by more than 2% on the year, while the British pound to euro (GBP/EUR) exchange rate has plummeted by nearly 10% in 2020.

UK shares are also heavily underperforming in comparison to their US and European counterparts as investors price in the risk of a chaotic exit.

Economists have warned that a no-deal Brexit would have severe repercussions for European economies, with the UK financial markets, supply chains and the British property market expected to be subject to violent shockwaves.

While much remains uncertain over whether a UK-EU deal will be secured, some of the pressing questions being asked are: How will Brexit affect the property market and what impact will Brexit have on housing prices?

property market

What does a no-deal Brexit mean for the property market?

After the British public voted to leave in the 2016 EU Referendum, concerns were raised about housing prices plummeting, with the Bank of England (BoE) warning that a no-deal Brexit could upend property prices by 30%.

However, legal certainty generated from the Withdrawal Agreement renewed optimism over the outlook of the housing market as housing prices began stabilising.

Now, the ongoing uncertainty and disruption generated by the coronavirus pandemic have made it impossible to say how Brexit will affect property prices in the UK, especially concerning the long-term impact.

Some economists have said it’s likely that financial markets have already priced in the Brexit impact into the UK property market, meaning that any substantial swings in housing prices following confirmation of a deal or no deal are unlikely.

Mark Hayward, chief executive of NAEA Propertymark, says: “While Brexit continues to add another layer of uncertainty to the housing market alongside COVID-19, we are hopeful that the government will continue to prioritise housing after the stamp duty holiday ends.”

However, some estate agents are warning potential buyers to take current property price figures “with a pinch of salt” as a no-deal Brexit could result in a short-term hit to the UK’s housing market.

How is the stamp duty holiday impacting housing prices?

Chancellor Rishi Sunak’s stamp duty holiday, which will run into March-end 2021 and is valid on UK property worth up to GBP 500,000 has acted like rocket fuel for the housing market.

According to property portal Zoopla, an additional 100,000 house sales are expected to be completed in the first quarter of 2021 as buyers rush to complete deals before the stamp duty holiday terminates.

Zoopla also noted that the number of new sales being registered in the UK is 38% higher than they were during the same period the previous year, with London and Southern England noticing a significant boom.

However, with more than 140,000 sales than usual in the pipeline, Zoopla warns that it is likely that only half of the purchases agreed in January will be completed by the stamp duty deadline.

With the Brexit transition period fast approaching and uncertainty over the outlook of the property market remaining elevated, many real estate agents and property professionals are pressuring the UK government to extend the stamp duty holiday.

That being said, it remains unclear whether Rishi Sunak’s stamp duty cut has been beneficial. Several experts have noted that buyers purchasing a property outside of London and the South West could have gains generated from the stamp duty cut negated by the increase in house prices.

Aside from the conclusion of the stamp duty holiday, 2021 will also see the introduction of a 2% surcharge on UK property purchased by foreign buyers due to Brexit.

Will Brexit affect the UK’s second housing market?

Currently, foreign buyers share the same benefit as domestic buyers in the UK, in the sense that they too can benefit from the stamp duty cut. As a result, activity in the UK’s second housing market has seen a significant increase over the last few months.

So, could the new 2% surcharge on property bought by foreign buyers result in a pullback?

Owner of Mansons Property Consultants, Nick Manson, believes it won’t. Mr Manson said that the UK would remain an attractive destination for foreign investors and “the weaker British pound (GBP) will likely soak up a significant amount of the 2% surcharge.”

He added: “There is no doubt that there will have been an increase in the number of transactions before the 2% surcharge on property purchases by overseas buyers coming into force from April 1st 2021.”

Suppose you already own property in Britain and are an EU or European Economic Area (EEA) citizen. In that case, you won’t be forced to return to your home country post-Brexit, irrespective of whether a UK-EU trade is secured. However, you and your dependents may have to apply for the EU Settlement Scheme to continue living in Britain after June 2021.

What will happen to UK citizens who own property in the EU post-Brexit?

Brexit isn’t only throwing up complications for EU citizens living in the UK, but Britons who reside in the European Union full-time or have second homes.

From January 1st, it’s clear that Britons who may travel to Spain or France for six months to enjoy the hotter climates, or avoid colder winters in the UK will be restricted by new rules post-Brexit.

Britons will become non-EU citizens after the Brexit transition period, meaning they will also be subject to the 90-day rule when travelling to the EU.

Before now, Britons could stay in the EU for any period without needing to apply for a residence permit. However, come January 1st any non-EU nationals wishing to spend time in countries such as Spain and France will only be able to do so for 90 days in any 180 days.

UK citizens who let out property in the EU could also see their taxes triple after Brexit. We advise sourcing a certified legal adviser who will be able to advise you on your situation and the taxes you may be subject to after the transition period.

That being said, as many EU countries rely on their second housing markets for economic growth, it’s unlikely that they impose any harsh taxes that would jeopardise activity in this market.

UK housing market prices 2021

Will property prices in the UK fall after Brexit?

Before the coronavirus pandemic, Brexit posed a severe threat to property price stability, with the Bank of England (BoE) throwing up the possibility of cutting interest on base rates in the event of a no-deal.

COVID-19 quickly made this reality as the UK housing market shut down for more than seven weeks due to a national lockdown in the country, while the BoE lowered rates to a historic low of 0.1% to support the UK economy.

As we come into the final days of 2020, the average price of a property in the UK is GBP 253,000, an increase of GBP 15,000 on prices recorded in June.

According to Nationwide, UK property prices have accelerated at the fastest rate in almost six years, while other research suggests that the increase seen in the last five months is the largest since 2004.

However, growth is set to slow next year when the stamp duty holiday tax comes to an end. The economic challenges triggered by the coronavirus and Brexit are also posing a threat to activity in the property market. At the same time, rising unemployment levels are expected to result in a pullback from buyers.

Nicky Stevenson, managing director of Fine & Country, said: “If the economic outlook and labour market deteriorate, with a no-deal Brexit still very much on the cards, this could prompt a larger proportion of buyers than usual to get cold feet and pull out. That’s where a big dent in this growth figure is likely to come from in reality.”

Analysts from KPMG forecast UK property prices to plunge by as much as 6% next year if the UK and the EU fail to achieve a Brexit deal. Should that be the case, the price of the average house in England will decline by more than GBP 15,000 in value – a massive blow to sellers.

KPMG predicts a darker outlook for London, with property prices in the capital forecast to fall by 7% in 2021.

However, the multinational firm warned housing prices could plummet by as much as 10% – 20%, depending on how markets react to a no-deal Brexit.