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Will Brexit Cause Housing Markets to Crash in 2019?

With the impending Brexit deal inching ever closer, and without much information about how it will be completed and constructed by the government in terms of making a suitable deal with the EU, citizens, and economists of the UK are wondering how the market will be affected by such sizable changes in policy. UK citizens are especially concerned about how their financial lives will be affected by the split. In a fog of uncertainty about the future of Brexit, citizens are forced to imagine the worst-case scenario, and so are economic analysts.

Though Brexit will allow for the UK to accrue more profit for the country while simultaneously eliminating sizeable taxes, there are concerns about how the financial market will be affected overall. With strenuous financial conditions already on prospective property owners’ minds, there is the possibility that the market could crash because of implications of a bad Brexit deal.

Outlets like The Guardian and CNBC project a 1 in 3 chance of the market crashing in 2019. Several factors are attributing to a crash, many of which hinge on the hard to predict the aftermath of Brexit and the security of a good deal with the EU.

London Stands to Lose the Most

Most research has been done around the UK’s main financial and cultural hub, London. Because of the international and economic draw of a city like London, EU nationals have been working and living there relatively unaffected by visa drawbacks. According to Financial Times, “A higher proportion of EU27 nationals live in London than in any other part of the UK.” While perhaps the rest of the UK market could be less affected by changes inflicted from leaving the EU, London’s market stability could be at the highest risk of downfall.

However, after securing the leave vote, mainly from rural areas of Great Britain, many of London’s EU residents, afraid for their future in the country, decided to leave. Worse, the reverse migration of EU nationals means that an entire group of former property buyers has been significantly diminished, leaving a surplus on the market. Highly valued properties may also drop in price, which may not be a good thing for the market in general.

Brexit Negotiations Haven’t Gone Smoothly; A Bad Sign for the Market

Still, analysts aren’t sure how damaging this supposed crash could actually be. Negotiations to exit the EU are still well underway, though have seemed to revolve around Theresa May’s stance on a soft Brexit– the opposite approach to what her more boisterous colleagues envisioned– thus causing a series of resignations in recent months.

The deadline for Brexit negotiations to end is March 2019, which will start the path towards the UK’s future as a global power and financial entity. The housing market’s stability relies entirely on the economic stability of the UK post-Brexit.

If negotiators go for a hard Brexit, there is the risk of trade deals being affected and restrictions being put in place that hasn’t previously been a factor for the UK since joining the EU.

As an Investor, Should You Buy a House After Brexit?

In the short answer, Yes! According to London based property investment experts Thirlmere Deacon. They strongly believe in the housing market will continue to grow and is a safe long term investment “Property should always be considered a long term investment unless you are experienced in flipping on properties for profit. Average house prices in the UK have continued to rise consistently for the last 100 years (over 47,000% from 1926-2016), through multiple wars, and huge economic crashes. The reason for this consistent growth is the same as always… Supply Versus Demand!”.

Slow Wage Growth and High-Interest Rates: The Effects of a Hard Brexit

Wage growth is also a factor in a bad Brexit deal, for those without growing wages will surely not be able to purchase a property. Widespread decline in wage growth could affect the whole country, not just its major cities.

Interest rates are also a factor in the market decline post-Brexit, as rising prices could affect interest rates for the consumer and leave properties untouched.

Prices Fall, So Does the Market

According to the Office for National Statistics, “UK house prices are now rising at the slowest rate since 2013.” Because of declining prices and reluctant wage growth, the market moves further into an unsteady territory and the likelihood of crashing.

Best Case Scenario For the Market

As outlined in Money Week, there is some optimism surrounding a supposed housing market crash, and John Stepek gives two scenarios the UK would like to see, or could: “One if credit totally dries up, no one can buy. That hits prices (as buyers can’t get mortgages anymore), but it doesn’t hurt existing owners. Two, if credit becomes much more expensive, then not only do houses become far less affordable for buyers, but existing owners also can’t pay their mortgages anymore, and so become forced sellers.”

Both scenarios have already happened, in 2008 and the 1990’s respectively, only time will tell if and when the market will crash in the UK.