"Post-Brexit, in a potentially far more uncertain economy, would lenders be looking to take on higher-risk loans?"
Just recently, a number of opinion polls appeared to show that the ‘Brexit’ camp was taking the initiative with more people saying they would vote to Leave – the result of these polls appeared to spook the markets with the FTSE100 and sterling both appearing to fall off the back of it. At the time of writing, with just three weeks until the result is known, I think it’s safe to assume that we can all expect a rather bumpy ride.
Clearly, when you have a housing market so inextricably linked to the economic well-being of a country, many people will be eager to know how it might be impacted should we vote to Leave. George Osborne and the Treasury has suggested house prices could fall by between 10-18% post-Brexit while Hometrack has argued that transaction levels could also fall by 10%. Perhaps bad news if you’re an existing homeowner, a mortgage adviser or lender, but maybe a reason to vote Leave if you’re a first-time buyer?
In fact this was exactly the view suggested by Moody’s recently, however it focused on how curbs to immigration would lower competition for housing, which might ultimately aide first-timers. It said that both housing and rental inflation would fall following a Brexit, because of the perceived slowdown in immigration, which might open up a more affordable market for first-time buyers.
Having said this, it’s predictions were very far from positive for all, anticipating that curbs on rental demand could see landlords’ struggling to pay their mortgages, plus it suggested arrears levels amongst self-employed people could rise due to the potential for greater fluctuations in pay. This scenario could clearly hit a far greater number of people now than a decade ago, given the number of self-employed people has grown significantly since the Credit Crunch.
As we have all come to learn, in this debate for every swing there is a roundabout, for every claim, there is a counter-claim. This has ultimately left the Great British public still unclear about the true picture that might emerge post-Brexit. Again, it is for these reasons, that the polls still seem to be showing large numbers of ‘don’t knows’ and this is likely to continue right up until the votes are made.
From a mortgage perspective, there’s no doubting that a significant drop in prices will make properties more affordable for first-timers, and given what has happened in the buy-to-let market, followed by any curbs in immigration, then demand and competition is likely to fall and move in their favour. However – and here’s the rub – the affordability of home purchasing by first-timers (even in this environment) is not assured. Deposits will still need to be saved for, mortgages will still need to be attained, affordability measures will still need to be reached – and this may well prove more difficult in an economy which could be running out of steam.
Certainly, one can foresee strength returning over a period of time, but nothing is assured in the immediate post-Brexit period, simply because of the uncertainty plus no-one quite knows how negotiations will play out, over what timescale, and the impact this will have. Lenders for instance have not been overly enamoured of taking on greater levels of risk in recent years, and first-timers with small deposits fall into this category. Help to Buy 2 has helped, but it ends in six months, and what then?
Post-Brexit, in a potentially far more uncertain economy, would lenders be looking to take on higher-risk loans, especially when they might also be dealing with other potential impacts such as wage falls, inflation increases, job losses, stagnating growth, etc. And let’s not forget that a first-timers' ability to get on the ladder could also be severely impacted if the negative pro-EU soothsayers actually turn out to be correct.
This is not a one-way positive route for first-timers purely based on falling house prices; much more has to be taken into account and in a weakened economy their ability to purchase will remain compromised regardless of how prices perform. These are all questions to be answered in the period post-24th June, when the result is revealed, but I suspect that until then certainty across the piece will be in very short supply.
