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No Deal Brexit likely to hit prices hard, with drop of up to 20% possible

While house prices are expected to increase once the Brexit uncertainty has lifted and a deal has been agreed, a no-deal could see house prices fall by around 6% in 2020, according to a new analysis.

Indeed, a drop of 10% to 20% is not out of the question if the market reacts stronger than anticipated, according to the research from KPMG UK.

It says that as Brexit approaches, the type of exit will impact the fortune of house prices in the UK in the medium term.

If the UK exits on 31 October with a deal, the firm expects house prices to stabilise in 2019 and to rise by 1.3% in 2020 but a no-deal Brexit could cause house prices to fall by between 5.4% and 7.5% across the different UK regions in 2020.

The report points out that the housing market has been stuck in the slow lane since 2016, with annual house price growth slowing to 0.9% in June 2019, from a rate of 8.2% three years previously according to data from the Land Registry.

Changes to stamp duty introduced in 2014 and 2016, which raised the costs for buyers of higher value homes and second properties, and the uncertainty of Brexit, have put the market on the back foot.

It explains that the slowdown has been good news for first time buyers looking to get on the property ladder, especially in areas of the country facing shortages of available housing such as the South East and London. House prices in these markets have now been falling for more than a year.

However, buyers are taking a cautious approach to purchasing decisions, with many opting to wait for a resolution to the Brexit saga. A potential no-deal represents the worst case scenario for home owners and it warns that a sudden departure from the European Union could have significant repercussions for the UK’s economy and housing market.

It adds that the outlook for house prices depends on the prevailing scenario. It is still possible that an intervention in the form of a further delay could push the exit date back, leading to weeks and perhaps months of continuing uncertainty and a lack of buyer confidence. But even a delay would largely return to the same binary choice between a deal and a no-deal.

‘Transactions volumes will likely fall much more than prices, making government housing delivery targets impossible to achieve and slowing new building across the sector,’ said Jan Crosby, head of housing, KPMG in the UK.

‘The level of leverage in the housebuilding sector is also much lower, meaning that volume housebuilders will be under less pressure to materially reduce prices. This helped create the downward spiral of prices in the global financial crisis,’ she added.

But the market is expected to recover most ground in the long run to the extent the economy finds a new successful path. Looking forward to 2020, the firms says that next year promises to be a delicate year for the housing market. Even if Brexit can be resolved relatively smoothly, the travails of the global economy will impact growth in the UK, making prospects for house prices relatively subdued.

One upside could come from government plans to change stamp duty. Potential changes include shifting the burden of stamp duty to the seller, exempting properties below £500,000 and reversing the surcharge for additional properties. If delivered this could lead to a significant increase in demand from buyers, providing a short term boost to the housing market, according to KPMG but the report adds that the Treasury may be unwilling to part with the revenues that stamp duty brings.