View more on these topics

Capital Economics: Housing market meltdown unlikely if UK leaves EU

UK-Great-Britain-Bunting-700x450.jpg

A vote for Brexit is unlikely to trigger an outright UK economic and housing market collapse but would still affect them both, according to Capital Economics.

A Capital Economics statement says the outcome of the vote will have “very little bearing on the UK’s medium-term economic performance” and the housing market.

But the firm says: “But it is certainly true that the referendum could persuade some firms and consumers to defer major spending and investment decisions, as well as triggering a more substantial drop in the exchange rate and a rise in the risk premium attached to sterling assets, including property.

“And with housing already looking very expensive, could even a brief rise in uncertainty and volatility tip it over the edge?”

Brexit would hit housebuilding hard though, says Capital Economics.

It says: “With the latest HBF data reporting that 41 per cent and 32 per cent of housebuilders consider labour availability and costs to be constraints on production, a shortage of workers has been holding back housing starts.”

CE says that around 12 per cent of construction workers were born outside the UK and that training a new wave of British workers would take years.

It explains: “Thus, if it compounded existing labour shortages, Brexit could have a lasting, dampening effect on housing starts.

“Altogether, uncertainty in the short term might lead to a small drop in transactions and a slight easing in house price growth. But we think the prospect of Brexit driving a collapse in prices is slim.

“Rather, with prices very high compared to incomes, and being propped up by a shortage of homes for sale, a recession and rising unemployment that drove up the number of forced sellers and cooled buyer demand is probably the biggest risk.”

The economic consultancy also says that some overseas buyers might be tempted to sell sterling ahead of the vote in order to maximise their gains.

But Capital Economics says returns are not the only reason overseas buyers opt for UK property.

The statement says: “They also see London as a safe haven due to its robust legal system, favourable property laws, stable governance and cultural draws.”

Capital Economics notes that most overseas buyers only want to buy in London, meaning Brexit should not affect housing demand.

The agency also says a rise in interest rates is unlikely to hit mortgage affordability.

It says: “With a slump in the pound likely to dampen confidence and with inflation already low, we doubt the MPC would panic and hike rates aggressively. In any case, MMR regulations already require banks to test buyers’ ability to withstand a 3 per cent rate hike.”

Capital Economics says there are few signs a recession is near, and that wages are likely to rise and mirror house price hikes.

Recommended

Mark-Carney-with-bank-note-in-background-700.jpg

Mark Carney: City of London will lose business in Brexit

The City of London will “without question” face a loss of business as a result of the UK leaving the European Union, says Bank of England governor Mark Carney. Speaking to the Treasury Select Committee about the impact of the EU referendum, the governor says that if the UK were to leave the EU and […]

Bank-of-England-BoE-Clock-700x450.jpg

Bank of England to release extra market funding before Brexit

The Bank of England has revealed it will carry out three special liquidity injections into the UK market around the EU referendum date in June. The Bank says it will undertake three Indexed Long-Term Repo (ILTR) operations in addition to the scheduled monthly operations. The additional operations will happen on June 14, 21 and 28, around […]

Brexit and the mid cap buying opportunities

Video update from Mark Martin, Head of UK Equities, Neptune Investment Management With the Brexit referendum scheduled for 23 June, how much risk is priced into the market and is the current volatility a long-term buying opportunity? Watch Mark Martin, Head of UK Equities, and Holly Cassell, Assistant Manager on the UK Mid Cap and […]

UK-Currency-Money-Coins-700.jpg
2

How would a Brexit affect the mortgage market?

A Brexit from the European Union is unlikely to hit the UK mortgage market hard, according to economists and trade bodies. A vote on whether the UK stays in the EU will be held on 23 June, Prime Minister David Cameron announced last weekend. Cameron wants the UK to remain part of Europe, but London […]

Guide

Guide: how to change your auto-enrolment support

As we approach the two-year milestone of auto-enrolment, employers have had the opportunity to truly assess the capabilities of their chosen support. They are also now realising that getting to the staging date was the easy part, and that support is required for almost every aspect of the day to day running of their scheme. With the three-year re-enrolment window coinciding for many with the total removal of commission and Active Member Discounts from pension-related products and services, as well as the introduction of the pension charge cap in April 2015, many employers will have no choice but to review their support options. But, what is involved in transitioning your auto-enrolment scheme away from your current support options? This guide from Johnson Fleming aims to outline some of these key areas and provide information and discussion points on what you need to consider.

Newsletter

News and expert analysis straight to your inbox

Sign up