Following the UK’s exit from the European Union in 2016, we are on the countdown to the end of the transition period on 31 December 2021, with new rules coming into force from January 2021.

But what does our exit from the single market and customs union mean for the UK property market, and more specifically, UK house prices? And what impact could a “no-deal” Brexit have?

Following the Brexit decision of 2016, house price growth actually stayed strong, growing in Spring 2017 (following a stagnant winter of 2016) and with an average rise of 2% in both 2018 and 2019. However, these rates are also based on other factors affecting house price fluctuation outside of Brexit, such as supply, demand, inflation and interest rates.

At the start of 2020, the impact of Brexit and continued uncertainty around securing a deal had become a concern for the property market. However, in March 2020 these concerns were overtaken by the arrival and rapid spread of the Covid-19 virus. The property industry (alongside many others) was completely shut down for 7 weeks, and experts began to predict a hefty 10% fall in house prices for 2020 as both the global and UK economy felt the impact of the pandemic.

When the property market reopened in May 2020, we saw a surge in both sales and house prices, particularly over the summer months, with demand up 54% since March 2020. No doubt incentivised by the Chancellor’s temporary stamp duty holiday, which offers buyers a saving of up to £15,000 until 31 March 2021.

But with fewer UK housing transactions to consider and a skewed picture of demand following the post lockdown surge in house sales, it is more difficult than it usually would be to get an accurate measure of house prices for 2020 onwards.

Whilst Land Registry house price data is some of the most accurate data available for UK house prices. Unfortunately, it is released 1-2 months after most house price indexes such as Nationwide and Halifax, leaving a delay between the current state of the property market and the data it provides. The Land Registry also pressed pause on their house price reports during the lockdown period and are still playing catch up. As of early October 2020, experts predict a current growth of around 3.3% for house prices in 2021, with the average house price sitting at £242,395.

When it comes to Brexit, despite suggestions that the Withdrawal Agreement be overridden, the Government have strongly signalled their preference for a trade deal with the EU, particularly as we approach the internal deadline set by Boris Johnson to finalise a deal in time for the Leader’s Summit on 15 October 2020. Indeed, Michael Gove has noted that there is a 66% possibility that a deal will eventually be reached.

But with a no-deal Brexit still mooted as a possible option, Mark Carney, the Bank of England’s governor, notes that their stress test of the UK financial system predicts a fall of up to 33% in house prices over the next 3 years if we fail to agree on a deal with the EU, causing an “instant shock” to the UK economy. This would also result in a falling pound value; inflation rises, reduction in real income and the possibility of widespread negative equity for many homeowners. Of course, this prediction is also based on worse case figures, and it would probably do us well to remember that the recession predicted prior to the 2016 referendum in the event of Brexit decision did not actually come to pass.

Whilst experts point to the continued high demand for housing post lockdown as an optimistic sign that buyer confidence has not been hit, even in the midst of a pandemic, and favourable mortgage rates which are boosting affordability, there is no denying that a no-deal Brexit and the continuing uncertainty could be bad for the UK economy.

Following the post lockdown surge in both sales and house prices the property market appears to be in a slightly healthier place than many had expected in the midst of the lockdown period. However, the end of the Government’s furlough scheme on 31 October 2020, the job retention bonus for employers in January 2021, the stamp duty holiday in March 2021 and the Job Support Scheme in April 2020 will give us a more accurate picture of the impact of both the Covid-19 pandemic and the Brexit outcome and whether this is something the property market will continue to feel for months and possibly years to come.

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