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How might Brexit impact property finance?

Since the referendum on the 23rd of June 2016, there has been widespread speculation regarding the effects of Brexit on the UK housing market. Although Article 50 has now been triggered, for now, the UK remains a part of the EU, and so it's difficult to measure the full impact of Brexit on property financing and the wider market. However, by analysing existing data and forecasts, it is possible to measure the potential impact of Brexit on the housing sector.


The Health of Housing Sector

According to figures from HM Revenue & Customs, since the referendum, there has been a fall in the volume of people moving home. In the final six months of 2016, housing transactions fell 9 percent compared to the same time period in 2015. So it would appear that the Brexit vote has impacted on people’s confidence in the housing market. The National Association of Estate Agents also reports that the number of properties available in each branch hit a record low in March, having fallen by 28% between March 2016 (shortly before the referendum) and March 2017.


Chart: Properties Available, per NAEA branch, March 2005 – March 2017

(Data – March 2016: 54 properties. March 2017: 39 properties.) Source: NAEA housing market report, March 2017





This reduced confidence is affecting property prices, particularly in London, which has been experiencing an extended housing boom. While house prices are still growing in the capital, prices are rising at the lowest rate since May 2013.


The timetable for the triggering of Article 50 was publicised well in advance, so it didn’t have a major impact on the housing market. The negotiations which follow – and their impact on confidence in the housing market – could have a significant effect. If the UK and EU have constructive talks, the impact is likely to be minimal, whereas more combative negotiations are likely to lead to buyers and sellers having reduced confidence in the market.


The Mortgage Markets

So far, the mortgage market appears unmoved by the vote to leave the European Union. However, one potential cloud on the horizon is a rise in base rates. If the Bank of England were to raise the base rate from 0.25 to 0.5%, the rise in mortgage repayment costs would be minimal, but it could have a much greater psychological impact, reducing confidence among lenders and borrowers.


A survey carried out by Contractor Financials, a specialist brokerage firm, found that 57% of industry experts questioned predict that the mortgage market will grow between 1 and 5% in the next year. However, the vote has created a great deal of economic and political uncertainty, with factors such as the snap election called for June 2017, sterling hitting a 31-year low, and the resulting rise in inflation, all potentially impacting how confident traditional lenders will be in offering loans. This loss of confidence could further weaken the traditional lending market, which has still not recovered from the shock of the 2008 financial crisis.


If this is the case, alternative financing such as peer-to-peer lending and asset-backed securitisation will play an increasingly important role in ensuring that landowners and property developers can secure the financing required to commence and complete house building and refurbishment projects.


While it is too early to say exactly how Brexit will impact the property market, as the negotiations proceed, the market will need to be ready to respond to any economic or political shocks which occur.


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