Post-Brexit House Prices and Foreign Investors

When the United Kingdom voted to leave the EU, the pound dramatically dropped. While it has since recovered, it hasn’t come up to where it was before in strength or perception of its stability. In all likelihood, it will continue to drop as Brexit becomes a reality and a no-deal Brexit seems imminent. Not only is the pound weak, but housing prices have also steadily gone down, making the environment ripe for wealthy foreign investors who want to buy property cheaper than they could get it five years ago. The market is precarious but this isn’t only negative. There are some positive aspects of this but it will interesting to see how all this pans out. For now, it looks like a lot of foreign investors will buy up property.

Brexit & House Prices

There is a lot of speculation about the prospect of a snap general election, and a number of MPs have attempted to block a no-deal Brexit. The UK’s Prime Minister Boris Johnson has made his intentions clear, he wants Brexit to be official on October 31st whether there is a deal or not. Economic uncertainty has affected the housing market significantly, with price growth slowing every year. Transactions are down by 16.5 percent and rumors of a base rate cut in the next few months could also create further confusion for people weighing their options on whether to buy a house or remortgage.

A no-deal Brexit remains the default position of an agreement, which cannot be reached between the EU and the UK. According to MoneyPug, the site used as a mortgage calculator, the accounting firm KPMG has estimated that housing prices will fall around 6 percent following a no-deal Brexit. Furthermore, there could be up to a 20 percent drop in the worst-case scenario.

The Office for Budget Responsibility said that a no-deal Brexit could lead to falling house prices by nearly 10 percent within the next two years. Others have warned about the instability of the economy following a no-deal Brexit. The Bank of England governor Mark Carney warned that leaving the EU without a deal may send property values down a third. He said the UK economic growth is guaranteed to fall under the terms of a no-deal Brexit. With house prices set to fall, foreign investors have become interested in the UK and its properties.

Foreign Investors

Following the vote to leave the European Union, rich from around the world have taken advantage of the decline in the value of the pound. They have bought three times as many luxury homes than before the vote. Before the vote, there were 100 sold during the previous 12 months. After the vote, 200 homes were sold, according to HM Revenue and Customs. This was following a freedom of information request.

The latest figures are that house prices could crash as much as a fifth if the no-deal Brexit goes through. The biggest declines would be in London and Northern Ireland. KPMG has said that house prices would fall between 5.4 percent and 7.5 percent. Average house prices across the country showed a no-deal Brexit could trigger a nationwide decline of about 6 percent in 2020. Average prices across the country have risen by 0.9 percent in the first half of this year, and despite the value of the average home in the capital potentially declining next year as a result of a no-deal Brexit. KPMG said it would still have the highest cash prices in the country.

While there is a lot of uncertainty when it comes to Brexit, a few things are clearer. The pound has declined and will decline more as uncertainty increases. Housing prices have gone down and there is no sign that they are going up. This will attract foreign investors who want to buy up property in the UK and use it for themselves or to resell later for larger profit. This may be good for the economy, but it does sell off real estate in the UK to foreign investors, which in the long run may cause contention and strife. These are uncertain times, and a lot will change before things calm down and stability is achieved, but it may come at a price.