Summary of a post.
Are we really on the brink of a house price crash?
It’s barely been a fortnight since the historic referendum vote, but with all the economic fallout which has ensued, it feels as though it took place during a previous lifetime. 
Attempting to assess the full ramifications of Brexit at this stage is almost impossible in such unprecedented circumstances – not least of all because the process hasn’t technically begun yet.
But investment and the economy is, by nature, a game of speculation, and one of the areas of the market which appears to be particularly riddled with uncertainty is that of property. Those who feel a world away from making it onto the housing ladder will probably be licking their lips at the prospect of a crash. But, for homeowners, it is a serious business.
The early indicators
A report released by the Bank of England (BOE) this week predicted that house prices could slump by up to 20 per cent on average as a direct result of the UK’s departure from the European Union – albeit that that was cast as a worst-case scenario.
In the immediate term, house price indices among Blue Chip builders and the bigger names in the industry have already taken a significant beating in the past week. Forecasts from the companies have been a mixture of bullish, cautious and grim, thus making it difficult to assess which way things will go. However, BOE governor Mark Carney has issued some reasonably dire warnings on this front too.
The threat of recession could have an impact of its own on house prices too. Those whose financial circumstances change and are struggling to pay off their mortgages will, at best, fuel the recession by having to cut back on their spending. At worst, if they are unable to pay off their loans, enormous pressure will be put on banks and building societies, while repossession of homes on a mass scale would compound house price woe.
Added to this, the uncertain circumstances could well set into motion a firesale among buy-to-let landlords looking to beat the decline, which would apply further downward pressure.
Weighing up the mitigating factors
The other school of thought is that Brexit doesn’t actually have very much to do with the potential house price crisis. First of all, the slowdown of the Chinese economy and slump in oil prices has scared many foreign buyers away from purchasing commercial property, particularly in London, and this had arguably begun to take effect before 23 June.
The Chancellor of the Exchequer has also introduced some measures over the past year or so which, by nature, will have slowed demand for residential property. These changes include increases in stamp duty and tax on buy-to-let properties, while taxes on second homes and more stringent mortgage rules for prospective homebuyers are also in the pipeline.
UK house prices are cyclical anyway, with many booms and busts scattered across its chequered history. The argument that the market is overheated – both within the M25 and beyond – is one that’s been regularly made. Indeed, the UK House Price Index rose by around 30 per cent in terms of index points from the start of 2013 to April 2016, with month-on-month increases in all but three in that time. It does appear to be somewhat unsustainable in itself. So, the question becomes, to what extent would a lack of EU membership be a factor if a crash is to eventuate?
The other side of the coin is demand and supply. Home Builders Federation deputy chairman Peter Andrew is quoted as saying that Britain is still “one million homes short of what the country needs.” Few dispute that there is an acute, fundamental housing shortage, and this, by definition, should arrest any slide – coupled with the fact that demand for housing will never realistically cease, and could surge if mortgage rates were to drop even lower.
Making sense of it all
Trying to predict the future tends to be perilous – even for economists. But, like we’ve said before, we are firm believers that the effects of market turmoil and recessions can be exacerbated, and even fuelled, by changes in consumer behaviour. The decisions we take on a daily basis about our purchases, investment prospects and even businesses have a direct knock-on effect to the wider economy, so we all need to play our part in maintaining overall consumer confidence.
Of course, that’s not to say that a big decision like purchasing a property should be made without factoring in disconcerting external issues such as these. But property in particular should always be viewed as a long-term investment, so, whether you’re considering buying or selling, it’s important to weigh this up against any short-term upheaval. And, as far as possible, heed the words of the now-famous poster unveiled to the British public at a time far more turbulent than this: Keep calm, and carry on.
Related articles:
- Looking after your pension pot post-Brexit
- What's the best balance for your investment portfolio?
- Brexit and Lending Works
- Will we live in a country of negative interest rates?
Get email updates for future blogs:
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
As with all investments, your capital is at risk.
In line with our risk management framework, today we published our Q4 2019 performance update.
As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
Featured
Wednesday’s Budget speech, coupled with the cut to Bank of England rates, represented a decisive response to the coronavirus. Here we analyse the impact it will have on mitigating disruption from Covid-19, along with the long-term implications of this significant fiscal stimulus.
Rumblings from the Treasury ahead of next week's Budget suggest tax grabs will be needed to fund increased spending, and it appears UK enterprise could be in the firing line. Here we articulate why targeting entrepreneurs and small business is ill advised.
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
There is a variety of literature and research illustrating the importance of building brand loyalty, albeit with some degree of variance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The idea of peer-to-peer (P2P) lending is a simple one; you lend money to those who wish to borrow, with a view to receiving a great return for doing so.
Most popular
The 2019-20 ISA season has been a damp squib, with banks disinterested in attracting savers’ cash, rates cut, and the stock market in freefall. However, the emergence of the IFISA means alternatives beckon for those seeking a stable middle ground in terms of risk and reward.
In a decade of slow recovery, the rapid rise in asset prices has been the standout. But how sustainable has price growth been, and could we be in the midst of a bubble?
- Summary of a post.
Most people consider income tax to be a given, but in the UK it is barely two centuries old. In this article, we look at how this tax has developed over the years, and also why it is set to remain at the core of our tax system for many decades to come.
Open banking celebrated its second birthday last month, but has the ‘revolution for financial services’ that was promised actually come to pass? In this article, we look at the progress the initiative has made so far, and what the future holds in the face of high levels of scepticism.
On the face of it, a 'broken' energy market needed fixing, and the price caps introduced in early 2019 were heralded as the solution. But, one year later, have they actually helped consumers save?
Recent
The Lending Works Shield does not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The Lending Works Trustee has absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Lending Works Shield when considering whether or how much to invest. For more information click here.