With just under three weeks to go, recent opinion polls on the EU Referendum suggest that voters are split 52% – 48% in favour of leaving the EU (ICM/Guardian) .
What will a Brexit vote mean for UK homeowners?
A report released by Nationwide in May 2016 noted that although the annual house price increase has slowed to 4.7%, down from 4.9% in April, the average house price increased by 2%; estimating that the average price of a house in the UK stands at £204,368. The recent increase in house prices is making it difficult for first-time buyers to begin investing in the property market, making getting a foot on the housing ladder a daunting prospect. With politicians and economists believing that house prices will drop if Britain decides to leave the EU, the possibility of cheaper house prices may be a crucial deciding factor for voters.
Pro Brexit campaigners
Today, ex-defence secretary Liam Fox is expected to appeal to young voters by stating that they face longer living at home with parents if Britain stays in the EU. In his speech later today, he is expected to claim that young people cannot cope with rising rent costs and compete with growing competition to buy into the market, and blaming immigration for the current housing crisis.
“Most new immigrants move into the private rented sector, which has grown as the immigrant population has grown….Competition for rented accommodation obliges all those in the private rented sector to pay high rents which take a large share of income and makes saving to buy a home even harder,” Mr Fox will say.
His words are expected to echo those of Chris Grayling, leader of the House of Commons and pro Brexit campaigner who, in an interview with the Guardian earlier this week, said:
“It is already tough to buy a house…. But if we are bringing a population the size of Newcastle upon Tyne into the country every single year, if we cannot set limits on the number of people that come and work in Britain, then simple maths says it is going to be even more difficult to get on to the housing ladder.
“More people chasing not only properties to buy but properties to rent, the more difficult it gets, the higher rents get”.
Will house prices fall?
Foreign investors largely rely on the free movement of people into the UK to secure confidence in oversea investments; but a Brexit vote may trigger a wave of uncertainty within the market, meaning there will be less demand for houses and therefore a price reduction. In early May, The International Monetary Fund (IMF) said a Brexit vote could see “sharp drops in equity and house prices”, as investment in areas such as commercial real estate and finance would take a hit.
The IMF said
“Uncertainty over the outcome of the referendum on EU membership, and about the implications of a potential Leave vote, already appears to be having an impact on investment and hiring decisions, with recent surveys of economic activity falling to their weakest levels in three years.
“While there is wide uncertainty around the market reaction to a leave vote, as the historical experience with similar events is limited, it is expected to be negative and could be severe.”
How much would the average home owner lose on the value of their property?
The National Association of Estate Agents support the view that a Brexit vote would see foreign investors scarper, and predict the average homeowner could lose up to £2,300 over three years with homes in London losing an average of £7,500.
Further risks to homeowners
Homeowners will also have to take into consideration a drop in demand when looking at long-term house prices. If a drop in demand continues after the referendum, house price inflation as well as rental growth is also liable to follow suit. This may benefit those looking to get a foot on the property market – but current home owners and landlords will undoubtedly suffer.
Furthermore, there is a risk that a Brexit vote could trigger an economic crisis. This would mean that as a result of fewer job opportunities and a restriction of mortgage lending, fewer buyers will be able to afford mortgages even with reduced housing prices.
Treasury warning of economic of slowdown
“In the long term, the country and the people in the country are going to be poorer. That affects the value of people’s homes, the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10% and up to 18%… And at the same time, first-time buyers are hit because mortgage rates go up, and mortgages become more difficult to get. So it’s a lose-lose situation,” said George Osborne.
Political Bias
It is important to keep in mind, however, that these are estimates made to the best degree of knowledge on what the aftermath of the vote will be. The truth of the matter is that no one knows for sure what exactly will happen especially in those decisive weeks after the vote if Britain were to leave the E.U.
Only once we see what type of post-Brexit trade deal the UK would sign with the EU are we be able to see exactly the economic impact of a Brexit vote. The all important trade deal could decide on restrictions of free flowing movement into the UK and consequently affect the housing market for future generations.