Every day, the headlines continue to be dominated by the latest updates concerning the government’s ongoing efforts to handle the Brexit situation. March 29 2019 is now only weeks away, and so with seemingly no true indication as to what the permutations of Brexit will be, the country (and indeed the world) continues to operate with this lingering uncertainty. This article will therefore consider the impact the uncertainty surrounding Brexit has had and will continue to have on the housing market for Scotland and the rest of the UK.
In the immediate aftermath of June 2016’s Brexit referendum, the UK housing market was relatively unaffected. Across the country, from Scotland to London, the sale and purchase of houses remained steady, as did prices. As surprising as it may be, simply put, the Brexit decision itself did not seem to have too much of an impact on the country’s housing market.
However, more recently this has started to change. There was little reaction in the London housing market in the year following the referendum result, however, last year saw the market decline dramatically. There were approximately 20% fewer London-based property transactions in 2018 compared to 2017, with 19% fewer homes being put on the market. Furthermore, house prices fell by an average of 1.8%, meaning that the value of each house that went on sale in London dropped by an average of over £11,000.
It is obviously difficult to conclusively link this decline with the uncertainty as to what the permutations of Brexit will be, as there are obviously other factors affecting the housing market. However, in theory it makes sense to attribute the decline in the housing market to the Brexit uncertainty, as this is arguably how we would expect the market to react.
The uncertainty surrounding Brexit means that individuals are less clear about how they will be affected financially by Brexit. This financial uncertainty naturally makes would be buyers more cautious about spending particularly large sums of money on property, with people preferring to “wait and see” what the outcome with Brexit will be before committing to such investments. This therefore, in theory at least, reduces the number of people buying properties. Fewer people willing to buy homes means fewer people willing to sell homes, which therefore results in fewer properties available on the market. The decline in demand for properties also means that those who are selling are forced to lower their prices in order to attract buyers. As prices fall, other prospective sellers, recognising that the value of their property would be likely to decrease should they choose to sell, are deterred from selling, electing instead to wait until the market and the value of their properties are restored before doing so.
Therefore, it makes sense that this is what is happening in London. What is interesting however, is what has happened this side of the border. Despite the decline in the housing market in London, the housing market in Scotland has remained relatively steady, with house prices even rising (by an average of 4.8%) last year. It has been argued that this is due to the fact that London property prices are considerably more expensive, and that London jobs are more threatened by Brexit, than in other parts of the UK.
However, towards the end of 2018 the Royal Institution of Chartered Surveyors reported dwindling sales figures in the Scottish housing market in the final few months of last year. It also projected that house prices would fall in 2019, attributing this eventual decline in the market to prospective buyers being increasingly cautious given the economic uncertainty caused by the Brexit situation.
In addition to falling sales figures and property prices, there is a concern that this uncertainty is contributing to another problem in the housing market. Independent of the Brexit, it has been well documented over the last few years that the Scottish government has been concerned about the insufficient availability of housing. In order to combat this housing crisis, the Scottish government set itself the target of significantly increasing the number of residential properties in Scotland by the end of its current term in May 2021. Whilst the government appeared to be on schedule to reach this target this time last year, over the last few months it has become increasingly unclear if the additional 50,000 homes will be completed as hoped for.
This is because there are concerns that the recent decline of activity in Scotland’s housing market will have an impact on the building of new homes. With the housing market seemingly in decline meaning that there is a threat that both the number of people buying properties, and the value of properties, could drop dramatically, contractors are understandably cautious about incurring the significant investment required to build new homes at this stage. Doing so could result in them holding buildings that they are not able to sell at a profit, or even at all. Therefore, it appears that the Brexit uncertainty is not only impacting the housing market, but also impede the Scottish government’s plans to address the housing crisis, as the fragility of the market as it stands creates too much risk for would be developers.
This in turn is having an impact on Scotland’s letting market. There is a shortage of available housing in Scotland and, as mentioned above, it appears that the Brexit uncertainty means the supply of new homes will struggle to grow. Whilst the demand for purchasing properties is falling across the UK, the demand for leasing properties is remaining steady. This is somewhat unsurprising, as the unpredictability of the housing market means that there is considerably less risk at the moment in entering a short-term lease than buying a property which could be subject to a decline in value. With the supply of properties to let falling and demand increasing, landlords are able to increase the rent charged, which is why the price of renting accommodation is expected to rise in 2019. Indeed, it has been noted that rent in the private housing sector of both Edinburgh and Glasgow are continuing to “spiral”.
Therefore, whilst the Scottish housing market has thus far remained relatively unaffected by Brexit, especially compared to London, there are now signs and concerns that the continuing uncertainty is taking its toll. As this article has explored, this does not just mean that house prices could drop, but a number of other problems in the market, such as the availability of housing and rental rates (among others) could be affected by this as well.
Our team of are always on hand if you are looking to buy or sell a property. To get in touch give us a call at 0141 375 1222.
Get in touch
Speak to one of our experience legal team, and get responsive, clear, and straightforward legal advice and support.