A major story in the news over the past week has been a debate on the effect the EU referendum will have on property prices in the UK. The debate was sparked by the Chancellor of the Exchequer George Osborne who suggested that the UK leaving the EU could cause prices in Britain to fall by 18% in the two years following the vote.
At the recent G7 summit in Japan, Osborne said that “if we leave the European Union, there will be an immediate economic shock that will hit financial markets. People will not know what the future looks like. In the long term, the country and the people in the country are going to be poorer. This affects the value of people’s homes and 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%”. The reliability of Osbornes prediction is of course questionable; it was Osborne himself who in 2010 said how “we couldn’t trust Treasury reports”. Ian Duncan Smith hit back at these claims comparing Mr Osborne and his claims to Pinocchio, he went on to slate the treasury forecasts saying that “they do not know – this is a treasury report. The Treasury did not pick the recession when it came; the Treasury was unable to tell us back in November that actually we would have fewer tax receipts than we expected two months before. Don’t believe forecasts, most forecasts are wrong”.
Whether this is scare tactics or not from the Chancellor, it has certainly had an effect on the actions of buyers in the market with property purchases slowing considerably in anticipation of the result and its effects. Any uncertainty will slow down the property market as changes can have considerable effects on the viability/profitability of certain projects. Furthermore Rowena Mason and Hilary Osborne in the Guardian have reported that some investors going ahead with deals “were inserting ‘Brexit clauses’ in commercial deals to allow them to pull out”.
On one hand all these predictions and forecasts could be correct. Leaving the EU may have a negative effect on house prices, which will be bad for homeowners and good for first-time buyers. On the other hand the exit may have little effect at all, or may even cause prices to increase. As Winkworth say “if the UK suddenly freed from EU regulations attracted more inward investment, not less, the property market would benefit”. Unfortunately until the referendum results are in, and most likely a significant period of time afterwards, it won’t be clear which way the market will go.