Why Hasn't Brexit Made Homes More Affordable?

Generation Rent didn't get their silver lining.
Neil Hall/PA Wire

For Generation Rent it was supposed to be Brexit’s silver lining: a crash in house prices big enough to get them on the first rung of the property ladder.

A month before the referendum, investment analysts Moody’s released a report saying Brexit would be a huge boost for first-time buyers. Suddenly, unaffordable properties would be in reach - particularly in London.

And it was widely believed that leaving Europe would cause the housing market to crash. The then Chancellor George Osborne predicted it would experience a “severe shock”, the Treasury a 20% fall over two years, the International Monetary Fund a “sharp drop”.

But it is now six months after Brexit, and not much has changed. The UK House Price Index shows the average house price has actually inched up since the vote. And while the Office for Budget Responsibility (OBR) has fractionally reduced its forecasts for house price growth, it predicts Brexit will eventually push house prices even higher.


And as for 2017, no major slumps are forecast. Savills says house prices will stay flat, while Royal Institution of Chartered Surveyors (RICS), Nationwide, Hometrack and Rightmove all predict small rises of between 2% and 4%.

Any shakes in house prices most put down to an increase in stamp duty on second homes, introduced in April 2016, which has made people reluctant to sell. Simon Rubinsohn, Chief Economist at RICS, has said its impact “has been a much bigger factor in the profiles of activity over the year than the referendum.”

So why hasn’t Brexit caused house prices to drop?

1. Weak demand is matched by weak supply

If the uncertainty of Brexit has made buyers cautious, it has done the same for sellers. For several months there have been falls in the number of houses coming on to the market, which keeps prices up.

2. Wages haven’t (yet) been hit

Unemployment rates and wage growth remain steady, for now. As the economy holds up, so does the number of people willing to take out new mortgages.

3. Looser credit for buyers

Interest rates were slashed after the referendum, and borrowers found themselves with better conditions. The pound also weakened, which may have helped keep foreign investment.

4. Not enough houses

But the main reason house prices haven’t slumped is that there’s a shortage of them. House building has long been neglected in the UK, and although it has recently picked up a bit, it has a long way to go before catching up with the expanding population.

In fact, according to Robert Gardner, Nationwide’s Chief Economist, the number of homes on the market is now “close to all-time lows”. The average rate of building is 12% lower than it was before the financial crisis, and 37% below what it should be to keep up with increases in the population.

And there are fears Brexit could actually make the problem worse, as construction firms face uncertainty: property firm JLL suggests the number of housing starts could fall in 2017.