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We predict that house price growth will stagnate in 2019 due to property market uncertainty and the ceiling of affordability being reached in much of the South. The outcome of Brexit could have the most significant impact on prices, with a disorderly ‘no-deal’ scenario likely leading to a fall in prices. However we expect a rise, albeit at a subdued rate, of around 1% should the government form a reasonable exit deal with the EU.

Prices in London and the South East are likely to fall regardless of Brexit as they reach the limits of affordability. Lenders have no further capacity to stretch loan-to-income ratios, with regulation and prices having raced far ahead of income growth. However we expect many areas outside of here to experience growth should the Brexit negotiations reach a reasonable outcome.

The effect of Brexit

Since the vote on 23rd June 2016, the uncertainty surrounding Brexit has made market sentiment quite fickle. The consequence of this is a slowing in house price growth, with the future state of the economy and housing market becoming difficult to predict.

Homeowners in areas where prices are already stagnating or falling have an incentive to wait and see rather than commit now.

The critical point will come when we agree (or fail to agree) an exit deal with the EU. The market could see a recovery if the government can pull off a sensible deal.

However the outcome of a ‘no-deal’ scenario is likely to be a fall in house prices. The Bank of England’s governor predicts that in a worst case scenario, prices could fall as much as 33% over three years. We predict that a fall in prices in the wake of a ‘no-deal’ Brexit will be far less dramatic. The scarcity of supply to the market and limited choice for buyers will prop prices up and decrease likelihood of a crash.

Mortgage rates

We expect interest rates to rise, albeit at a modest rate and to a limited extent. However the effect of a ‘no-deal’ Brexit on interest rates is difficult to predict – in this scenario a devaluation of the pound could force the Bank of England to increase rates to counter inflation.

First-time buyers

Whilst the near future of the property market remains uncertain, we believe it is still a good time to be a first-time buyer. First-time buyers have been given a stamp-duty break from the government, with an effective rate of 0% on the first £300,000 of a purchase. Mortgage rates also remain low, and those wanting some shelter from potential interest rate rises in the near term are being offered very competitive rates on five-year mortgage products.

However with Brexit in the background and uncertainty surrounding the economy and housing market, it would be prudent to plan for a scenario where prices fall and consider job security before buying a property.

Source: Mortgage Introducer

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