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Brexit has been predicted to bring growth to the UK housing market if history is repeated.
There is nothing quite like Brexit in history, but it is interesting to compare it to when the UK first joined the EU, and that exactly what UK property developer SevenCapital has done.
They found that house price data shows that on the lead up to Britain joining the EEC (now the EU) on January 1 1973, house price growth, in anticipation, was strong – reaching more than 50 per cent in the 12 months between the Treaty of Accession being signed in January 1972 and the day the UK officially became part of the EEC.
However, in the following couple of years, with a new Labour government coming into power and campaigning to renegotiate the terms of the UK’s EEC membership, house price growth, potentially driven by uncertainty, dropped to a low of 3 per cent from January 1974 to 1975.
It was only when a referendum, in June 1975, on whether the UK should remain in the EEC had taken place, which saw 67.3 per cent of voters voting in favour of maintaining membership, that house prices began to pick back up again: between the referendum and January 1976 house prices increased 6.3 per cent, followed by 7.5 per cent to January 1977 and 10.2 per cent to January 1978.
So how does this history correlate to Brexit now?
Firstly, where we saw significant house price growth on the lead up to the UK joining the EU (EEC), we also saw very healthy house price growth in the two years before the referendum to leave the EU in 2016 – the highest since 2010.
Then, over the next two years, uncertainty ruled with opposing political parties and MEPs campaigning against the government to revoke Article 50, house price growth dropped to a low of 1.7 per cent in the year to January 2019 – the lowest since circa 2012.
Looking back in history to the referendum in 1975 when certainty was restored by the public voting in favour of remaining in the EU (EC), we have only recently begun to see more positive movement – the ‘Boris bounce’ – in the housing market following a clear win by Boris Johnson leading the Conservatives, with the promise to ‘Get Brexit Done’.
Rightmove recently reported that in the month following the election – between December 13 and January 15 – average property prices jumped 2.3 per cent in the biggest rise for the period since the website launched its house price index in 2002.
What happens next of course will depend on how the negotiations for the future relations between Britain and the EU pan out. If the right trade deal can be agreed by November 26, then the UK’s future relationship can begin in earnest on January 1st, 2021. In this scenario then we can perhaps expect house prices to return to a good growth level over the next 12 months.
However, with a summit set to be held in June to assess the progress of talks, at which point the UK can request to extend the transition period up to two years – to December 2022. As a worst-case scenario, this could mean the housing market remains at a steady growth level for a longer period until there is assurance of what the future looks like. Whichever scenario, it seems apparent that growth is set to return.
Andy Foote, director at SevenCapital, commented: ‘We’ve seen the beginnings of what is being dubbed a ‘Boris bounce’ in the housing market, and experts, SevenCapital included, have predicted a post-Brexit housing boom. Short-term, I expect this is likely to happen after January 31st. However, what happens next all falls on the speed and success of negotiations over the next five months.
‘What is apparent and is important to take note of, particularly for property investors and buyers wondering whether to buy now or wait, is that whilst we’re in this period of uncertainty, house prices are still growing – however slow they might seem. It’s potentially an opportunity for the less risk averse to invest or buy before the bounce and wait for the market to return to higher growth again.