Markets like good news and dislike bad news, but most economists agree that what markets hate most is no news - or news that you cannot rely on. The reason is that uncertainty makes it impossible to forecast risk, and without the ability to forecast risk, there is simply no basis for making decisions about the future.
This is the dilemma faced by buyers and sellers in the UK property market as uncertainty continues to vex Brexit negotiations. Will the outcome be a good deal or no deal? Will there be a leadership change? And is a second Brexit vote truly off the cards? And, whichever scenario prevails, what will be the impact on the value of your property if you already own one, or on your ability to purchase property if you don't?
The current state of the UK housing market
Uncertainty was already eroding confidence in the property sector, a survey by the Royal Institution of Chartered Surveyors (RICS) found in September. This came shortly after Bank of England governor Michael Carney warned senior ministers that a chaotic Brexit would roil the economy and could send house prices plummeting by as much as 35% over the next three years. Appraisals by surveyors were down by 20%, RICS said. Fewer appraisals meant fewer sales listings, flagging a slowdown in the housing market as sellers sat tight, citing flat or falling house prices, and buyers fearing rising mortgage rates remained cautious.
In November 2018, with the deadline for leaving the EU a mere four months away, the UK property market hit its weakest level in six years, according to The Guardian's Brexit Watch. High-profile cabinet resignations, including that of Brexit secretary Dominic Raab, had seen the pound slide, ending 14% below its pre-Brexit dollar value. Defying expectations for a boost from the weaker pound, the share index also dropped in value, and retail sales were down although a high street price war kept inflation steady, and a spike in unemployment added to the general woe.
The property market looked more dire than it had since 2012. Could there be a worse time to buy or sell a house?
Should home-buyers hold off until Brexit is resolved?
Despite Carney's advice that buyers and borrowers should "proceed with caution", the answer to that question depends on your point of view, including your appetite for risk and your general propensity for thinking that the glass is half full.
It also depends on whether you are a prospective owner-occupier, or a buy-to-let investor.
Landlords are already feeling the pinch of new taxes and regulations hitting profits. Extra stamp duty on secondary homes, and the erosion of higher rate tax relief on mortgage interest, have already made both buying and servicing the interest on buy-to-let property more expensive. A post-Brexit rise in mortgage rates will hit this sector even harder, although higher rentals could offset losses in the long term.
Rising rentals are of course bad news for tenants, particularly given predictions that the increase will outstrip salary growth over the next few years. This may seem like the ideal time to finally put down that deposit and apply for that mortgage - except that the already unnerving switch from tenant to first-time buyer now looks even more daunting.
The impact of Brexit on the sell-to-buy market
The trend towards lower property prices (which forecasters say will accelerate if the buy-to-let crowd exit the market) could mean there are bargains to be had, creating ideal conditions for first-time buyers. But will you still be able to afford the monthly payments on your bargain when interest rates rise? And if lenders tighten up their rules for loan affordability the way they did after the global crash 10 years ago, will these more stringent rules exclude you from the UK housing market altogether?
And existing home owners looking to sell to buy elsewhere may wince at the thought of accepting an offer below what they paid. After all, five years of soaring house price growth, particularly in the more desirable parts of London and the South East, have ill prepared these homeowners for such ignominy. But it should be some consolation that the market value of their new home is also likely to have suffered the impact of Brexit uncertainty. It is an impact most keenly felt in London, where demand from international buyers has helped inflate property prices to almost double the average house price in the rest of the UK. But international property investors have likewise adopted a wait-and-see approach, with 80% of housing transactions now involving domestic buyers.
Property prices around the UK are still growing in the wake of London prosperity
The knock-on effect of five years of London prosperity is still rippling towards the north, with cities like Manchester and Liverpool, where the exodus of international buyers also hurts less, seeing sustained house price growth. But a new ripple could be on the way if Theresa May's government fails to secure a good-deal Brexit.
A good deal could see house prices surging in a "super-charged property market", according to Haart chief executive Paul Smith, breaking down the options for thisismoney.co.uk. Conversely, a no-deal Brexit would definitely put the brakes on an already sluggish housing market - particularly if,as Carney warned, the ensuing disruption leads to depressed economic growth, fewer jobs, higher inflation and higher interest rates. A change at number 10 doesn't necessarily bode well for the short-term value of your Central London apartment either, Paul Smith suggests, noting that the housing market "needs political stability" to thrive. Nor should you pin your hopes on extending the negotiations past March 2019, as this would only prolong the uncertainty the market hates so much.
Striking a more optimistic note, CEO of Mortgage Financial Solutions Paresh Raja believes buyers will find a way around stricter lending measures by turning to the alternative financial instruments that emerged after the global financial crisis. The fast, flexible loan solutions offered by these new lenders will aid determined buyers to access the capital they need, Raja says. Another signal that necessity is the mother of invention comes from the growing popularity of so-called off-market sales, through which prospective sellers discreetly target selected potential buyers to test price points ahead of entering the market in a more overt way - or deciding that home improvements will do for now.
Post-Brexit Britain: Crisis or Opportunity?
It's never been harder to answer the question, what is my house worth? For would-be sellers, getting maximum visibility on the value the current market attaches to their property is key - for although the overall trend is flat or falling, house prices are in fact erratic, Kate Faulkner of Property Checklist told the Financial Times in September 2018. "There are as many different markets in one city as there are across the country," she said, adding that in some residential areas house prices were simultaneously rising, falling and staying flat on "comparable properties within one square mile". Disorientating as this may be for most of us, it's the kind of information that is likely to pique the interest of canny housing investors who know how to exploit chaos for their own benefit. For while it may be true that the market hates uncertainty, it is equally the case that uncertainty loves opportunity. For those with the patience to scour the market, and the means to repurpose a property no-one else would touch, acquire a repossessed property or take advantage of a seller who is prepared to jump the wrong way, this could be the perfect time to go house hunting.
Audentes Fortuna iuvat, to quote a Latin proverb. Fortune favours the brave, which means that, for at least some investors, pre-Brexit uncertainty could well turn into a post-Brexit windfall.
Whether you're looking to finance a new home purchase, remortgage an owned property or just get a handle on what your prospects are in an uncertain market, MortgageGym is ready to help. It's simple - visit our mortgage calculator to get a live-time eligibility check, identifying the mortgage you are likely to be approved for and the amount you could borrow, and let us take it from there.