Brexit referendum sparked all-time high in house price uncertainty

6 August 2018 15:11
An aerial view of a housing estate

Uncertainty around house prices reached an all-time high after the Brexit referendum, according to a new tool developed by researchers at Lancaster University Management School.

And potential risks in the UK housing market are far from over.

The UK Housing Observatory, based at Lancaster University, has created a new index to chart changes in house price uncertainty, which will help signal risks in the UK housing market and overall performance of the country’s economy.

The House Price Uncertainty (HPU) is an index based on counts of articles from five major newspapers in the UK from 1982-2018 that contain terms relating to house prices and relevant policies.

The HPU index reached its highest ever point immediately after the referendum in 2016, showing Brexit’s impact on uncertainty within the housing market, and has remained high ever since.

The House Price Uncertainty tool has been used for the first time as part of the latest quarterly analysis produced by the UK Housing Observatory. The Observatory has been monitoring house prices for the last few years and the latest release reveals that the growth rate of UK property prices (the rate at which property prices have been increasing) has been falling since the start of 2018 – the lowest growth rate since 2013.

Greater London is the only region that has seen house prices fall by nearly 2% over the last year, whereas house prices in all other regions have increased. Surprisingly, the highest growth in property prices were recorded in East Midlands (4.4% increase), West Midlands (4.2% increase), Wales (4% increase), and Scotland (3.1% increase).

Professor Ivan Paya, one of the directors of the UK Housing Observatory at Lancaster University Management School, said: “The uncertainty in the housing market generated by Brexit, together with a continued subdued economic performance of the UK economy, are expected to put downside pressure on house prices. On the other hand, very low real mortgage rates and restricted supply of new houses are the factors that will still keep UK house price growth on positive territory.

“When we look ahead to the course of 2018 and the first half of 2019, we expect the growth rate of house prices will continue to drop – both nationally and across the majority of regions. By the time we reach the second quarter of 2019, house prices will increase by around 1.7%.

“Greater London is the only anomaly – as long as current economic trends continue, property prices will continue to decline in this region during 2018 and the first quarter of 2019, however prices will pick up towards the end of the following year.

“The Price-to-Income Ratio continues to be high for historical standards, close to its all-time high in 2007. Despite the decrease in London house prices, the ratio has not declined substantially due to the fall in real income. This indicator therefore continues to be a source of concern as pressure on indebted households does not show signs of easing off.” 

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