How Brexit Has Made Homeowners Turn to Quick House Sales
After three years of political back-and-forth, misinformation and numerous allegations of corruption, the UK is due to leave the EU on October 31. However, amid all the confusion and turmoil, it appears that homeowners are likely to be bearing the brunt of the economic damage for years to come.
What exactly is Brexit?
Brexit. A word that has only entered the lexicon in recent years, but whose consequences have propelled it to the forefront of the British collective conscious. But what exactly is Brexit?
Contrary to popular opinion, the anti-European sentiment held by many of those who voted to leave can trace its origins as far back as the years following the Second World War, as the more learned members of the British public found themselves becoming weary of the multinational financial, defences and trade organisations that had been set up to centralise power such as the European Union, North Atlantic Treaty Organization (NATO) and the International Monetary Fund (IMF)1.
For many Brits, this centralisation of power meant losing sovereignty and the ability for the UK to make its own rules.
The rise of such organisations was also paralleled by a rise in immigration over the latter half of the twentieth century as increased globalism saw many educated individuals seek employment in more developed countries than their own in the quest for a higher quality of life.
While most young people in Britain today enjoy a secular multicultural social scene, just fifty years prior, most of the British population had barely been exposed to immigrants of different races and cultures. Unsurprisingly, this provided all the ingredients for a rise in nationalist, bigoted styles of thought – especially in areas with low standards of education amongst the working classes. Furthermore, as the rise of immigration and the European Union coincided with one another, it was very easy for Brits to blame the latter for the former.
In reality, the rise of immigration was a direct result of increased political and business agreements between countries as well as cheaper travel options and the need for a larger workforce to help re-build the country and its economy once the war was over.2
By time the 1990s arrived, the British industrial and political landscape had changed massively. The closing of coal mines and the movement of jobs abroad that had previously provided work within the poorer areas of Britain saw a rise of anti-establishmentarianism become embedded in the minds of those who struggled in poverty.
As time passed, it became clear to many that the country had become London-centric, with many other areas left to continue their decline3. And as politicians and other wealthy investors centred their businesses around the capital, a new form of political figure began to emerge, happy to exploit those who failed to understand the relationship between the EU and the UK.
It was during this time that anti-EU politician and grass-roots campaign leader Nigel Farage began to see his profile gain inertia as he marketed himself to less affluent areas as ‘a people’s man’ who is less tied to the elite than the opposing politicians against whom he was competing.
Farage campaigned with others who shared his viewpoint -including the late Sir James Goldsmith – in an effort to direct public attention towards the growing issue of direct immigration within the Eurozone from less economically resilient countries who had recently joined the EU, while also drawing attention to the troubled economies of southern European countries such as Spain4.
During the early 2000s, the idea of leaving the EU began to really gain traction amongst those who felt disenfranchised by the European and British elites who they believed benefited from EU membership at the expense of those lower down on the social ladder.
This growing belief, coupled with multiple Parliamentary scandals, a paralysing economic depression and additional political pressure from the growing anti-EU sentiment within the various parties led to the fulfilment of a promise made by then-Prime Minister David Cameron to hold a referendum vote on EU membership 23 June 2016.
In the months leading up to the referendum, the public found themselves inundated with media campaigns and political rhetoric, with one in six Brits admitting that the divisive nature of the matter had created rifts between families and friends.5
When the results were announced, many were surprised to learn that the Leave campaign had been victorious – winning 52% of the counted votes. A large number of analysts believe that this was due to a lack of engagement with the referendum by pro-remain constituents, combined with a constant stream of misinformation by the Leave campaign that led to the historic decision.6
While the referendum was by no means legally-binding, the government felt obliged to begin the preparations to leave the European Union – much to the ire of the 48% who voted to remain.
Due to the political and economic fallout that grew in intensity over the next three years, as well as the failure by the Tory party to negotiate a trade deal with the EU before the deadline passed on March 31st, an extension for negotiations was granted until 31 October 2019.
In June 2019, Prime Minister Theresa May announced that she would be stepping down from her role, forcing a Tory leadership contest whose winner will be responsible for the continued Tory efforts to take the UK out of European Union.
How has Brexit affected the economy?
Since 2016, the UK economy has seen its growth rate stall. By 2018, first quarter reports by Reuters showed that the economy was between 1-1.5 per cent smaller than it would have been if the Brexit vote had failed. Although many analysts cite an estimated GDP fall of 2.5 per cent – placing it second to last in the G7 economy rankings, just above Italy7.
The UK has, however, enjoyed a huge drop in the rate of unemployment, hitting its lowest level since the 1970s. Unfortunately, those within the work and pensions sector admit that this has been heavily influenced by the increase of ‘zero-hour’ contracts whereby an individual can ‘technically’ be counted as employed, but without a contract that stipulates a minimum number of working hours per week8. This lack of dependable income has forced many Brits to seek second, or even third jobs to cover their monthly outgoings.
Wage growth has also slowed significantly as inflation grew way above the 2 per cent target set by the Bank of England7. This devaluation in currency cannot be entirely blamed on Brexit, as inflation has outgrown wages for decades, with younger generations finding it increasingly hard to build up their savings. However, the inflation rises have forced many households to extend their lines of credit from lenders merely to cover month-to-month expenses9. The economic impact of Brexit, nevertheless, has led the household sector into a net financial deficit for the first time since 19887
As many Brits are probably aware, much of the economic downfall has been centred in and around the capital. Since the days of Thatcher, the UK has positioned itself as a financial powerhouse, with London serving as a middleman between the US and European trade. Unfortunately, many of the multi-national companies, banks, and potential investors perceive Brexit to be a huge mistake that may affect their bottom line if the UK leaves the EU. This has led to numerous organisations re-structuring and moving their operations from London into the Republic of Ireland as well as mainland Europe to avoid the possibility of unwelcome tariffs.
With a lack of employment opportunities within these organisations, the capital has become a less attractive proposition for younger people who have recently graduated, while also forcing many established homeowners in London to find employment elsewhere.
Many companies – both national and international – have also moved their headquarters out of the capital, choosing to move north where land-rent is much cheaper. This increase of investment into cities that had previously been considered ‘secondary’ to London began to turn the commercial property market upside-down as northern towns started to flourish at the expense of the South.
The capital is also finding itself starved of investment, with the Bank of England admitting that before the referendum took place, they expected the economy to grow by 13 per cent between 2016 and 2018. As a result of the leave vote, however, investment in the UK grew by only 2 per cent in total, including a fall of 0.2 per cent between 2017 and 20187.
The signs that Brexit may well spell further disaster are also worryingly clear, with UK stocks becoming a less attractive investment within the FTSE250 in the US, falling by 0.3 per cent (an increase of 12 per cent in Sterling) – a figure that is dwarfed by other developed economies who have seen investment rise by 26 per cent7.
How has Brexit affected house sales and the housing market?
The British house market is entirely sustained by consumer confidence in the economy. Thanks to the fall in GDP, Brits are generally earning less than they would have if the Brexit vote was for remain. Since the vote, house price rises have started to falter, forcing many potential sellers to consider waiting until after the dust has settled before making any plans.
While employment is at its highest level for over 40 years, the continued effects of rapid inflation; the proliferation of zero-hour contracts and the static but overly expensive house prices thanks to years of growth in value have left a large percentage of individuals from Generation X, the Millennial generation, and Generation Z with very little chance of ever owning a home of their own. This has led to an increase in rental properties, and consequently, and increase in rental fees as landlords exploit the situation for further profit10. This hike in rental fees also swallows much more of the income from those within these generations – preventing them from building up savings.
For homeowners in the capital, the effects of Brexit have been startling, with a £40bn drop in property value increases between 2018 and 2019 according to recent data released by London-based agent Savills11.
“Given the extent to which London is [currently] priced relative to the rest of the country,” said Lucian Cook, director of residential research at Savills in July 2019, “the extent to which it had pulled away from the rest — the Brexit vote may well have been the catalyst for a shift in the market.”
It isn’t all doom and gloom, however, as thanks to the closing of the north-south divide in property values thanks to the aforementioned re-distribution of investment from the south to the north, the total value of housing stock across the UK has still increased by £243bn since 201611.
Unfortunately for the UK government, this increase is mainly a result of property value increases across Scotland and Wales7 – countries who have both expressed an interest in leaving the United Kingdom in the event of a no-deal Brexit.
What options do homeowners have amid Brexit?
While a large proportion of homeowners can sit back and watch the Brexit saga play-out, there are, unfortunately, many who will have no choice but to sell while the market is stagnant.
Employees who have been made redundant in the capital, for example, have found themselves needing to move cities to find another job. And as much of their equity is tied into their house, they need to sell their house in order to buy another.
While some individuals choose to commute, the increase in prices for train fares has made this an increasingly undesirable option.
Why are homeowners trying to sell before the Brexit deadline?
Those who own a property that they have considered selling for several years are now finding themselves between a rock and a hard place. As of mid-2019, the UK property market lies in favour of buyers12. So why are they so desperate to sell before the Brexit deadline?
The answer, it seems, is very simple. Fear.
Homeowners have seen the decrease in market activity in the years since the Brexit vote, as well as the falling sold house prices that have so far been concentrated in the south of England. For many of these individuals, they have already acknowledged that they have lost profit on their homes, but the fear that their home could lose even more value if the UK leaves the EU on 31 October encourages them to play their hand early.
This situation is not helped by the amount of misinformation being spread by the less-reputable members of the leave campaign, who believe that even an independent analyst’s estimate that the UK will be “worse-off” once Brexit is finalised is all part of a propaganda campaign by the UK and EU elite they refer to as ‘Project Fear’.
In reality, there is no easy answer to the question ‘Should I sell my house before Brexit?” as, in truth, those within the industry can only make educated guesses that often need revising thanks to the repeated changes in government policies and legislation related to the October deadline.
Luckily, there are always ways to sell a house – even in a stagnant market. And if the value is presently higher than it will be in the event of a no-deal Brexit, many homeowners believe that it is worth it.
So, how can these homeowners sell?
- They can choose to sell the traditional way via a high-street agent who is likely to have common knowledge of the area but will take a percentage of the agreed sale price.
- They can enlist the help of online estate agents, who offer flat-rate fees to lure customers away from their competitors. Although certain companies such as Zoopla and Purplebricks have been caught numerous times transgressing the guidelines set out by the Advertising Standards Authority in relation to false marketing claims as well as failing to disclose additional fees to their customers
- They can try to sell the house themselves privately, although this approach rarely leads to a profit comparable to that negotiated by a professional agent.
It is important to draw attention to the fact that although these methods will – more than likely – guarantee a sale, it is ultimately the strength of the market that governs the value of their home. This means that if they wish to sell their house within a short-time frame, they will most likely have to accept a purchase offer much lower than they anticipated.
Is there a faster way to sell a house?
There are always options for a homeowner if they wish to sell their house fast – no matter the location, situation or quality of construction – and this is via the use of private house buying companies who have the resources to purchase a home outright for cash. This method has increased in popularity over the last ten years as the need to move to a new house in pursuit of higher earnings has become a priority for a growing number of households.
Other options include the use of an auction, where a property can be placed on a ticket and bid for by prospective owners. Auctions are often used by property developers and landlords to find bargains that they can profit from by either ‘flipping’ the house, or by placing tenants inside once it is renovated.
While some sellers report excellent experiences within the auction world – there are yet more who are unable to sell for their reserve price, forcing them to either accept a substantially lower amount than they hoped – or withdrawing their property from the auction, whilst still being obliged to pay the auctioneer’s fees.
How will the property market react once Brexit is passed?
As mentioned earlier, the condition of the housing market – as well as the UK economy – once the Brexit deadline passes is not an estimate many experts are prepared to make publicly with making a disclaimer. There have been claims that the UK could face its greatest economic recession since the Second World War if it were to leave the EU with, or without, a deal as negotiations to arrange trade deals with other countries appear to be weakening13.
One thing that all analysts all agree upon, however, is that if Article 50 were to be withdrawn and Brexit cancelled, the British Pound would likely rise in value significantly amongst the other developed nations. Echoing this sentiment are the many international corporations that are still in the process of drawing up plans to withdraw and re-locate from the UK, stating that they may be willing to reverse their decision to leave.
Are you looking to sell your home before the Brexit deadline? Why not ask National Homebuyers for advice, as we buy any house. Call 08000 443 911 or request a call back to find out how much you could get for your property before it’s too late.
Sources and references:
1Friedman, G. (2016). 3 Reasons Brits Voted For Brexit. Available: https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/. Last accessed 9 July 2019.
2Yeo, C. (2017). Freedom of movement didn’t start with the EU – it’s the norm for Britain. Available: https://www.newstatesman.com/politics/staggers/2017/05/freedom-movement-didnt-start-eu-its-norm-britain. Last accessed 10 July 2019.
3The Economist. 2012. The Great Divide. [ONLINE] Available at: https://www.economist.com/britain/2012/09/15/the-great-divide. [Accessed 9 July 2019].
4Carter, Neil; Evans, Mark; Alderman, Keith; Gorham, Simon (1998). “Europe, Goldsmith and the Referendum Party”. Parliamentary Affairs. 51 (3). pp. 470–485.
5Mischke, J. (2019). Brexit has made Brits ‘angrier’ and ‘deeply divided’: survey. Available: https://www.politico.eu/article/brexit-has-made-brits-angrier-and-deeply-divided-survey-referendum/. Last accessed 9th July 2019.
6Cassidy, J. (2016). Why the Remain Campaign Lost the Brexit Vote. Available: Why the Remain Campaign Lost the Brexit Vote. Last accessed 9 July 2019.
7Giles, C. Fray, K. (2018). The UK economy since the Brexit vote — in 6 charts. Available: https://www.ft.com/content/cf51e840-7147-11e7-93ff-99f383b09ff9. Last accessed 9 Jul 2019.
8Trotman, A. (2015). Zero-hours contracts ‘save UK from eurozone levels of unemployment’. Available: https://www.telegraph.co.uk/finance/jobs/11435789/Zero-hours-contracts-save-UK-from-eurozone-levels-of-unemployment.html. Last accessed 9 July 2019.
9Burroughs, C. (2019). Companies are fleeing the UK no matter what happens with Brexit. Here’s all the damage that’s already been done. Available: https://www.businessinsider.com/brexit-damaged-city-of-london-2018-11?r=US&IR=T. Last accessed 9 July 2019.
10White, A. (2019). Renting in London forecast: Brexit uncertainty set to push average rents up faster than house prices by 2023. Available: https://www.homesandproperty.co.uk/property-news/renting/renting-london-forecast-brexit-uncertainty-will-push-rents-up-faster-than-house-prices-by-2023-a126901.html. Last accessed 9 July 2019.
11Pickford, J. (2019). London property values down £40bn in past year. Available: https://www.ft.com/content/3f105808-9e62-11e9-b8ce-8b459ed04726. Last accessed 9th July 2019.
12Collinson, P. (2019). UK house prices likely to keep falling for another six months. Available: https://www.theguardian.com/money/2019/apr/11/uk-house-prices-likely-to-keep-falling-for-another-six-months. Last accessed 9 July 2019.
13Chu, B. (2018). Brexit: UK could suffer devastating recession and worst economic slump since Second World War with ‘disorderly’ exit, Bank of England warns. Available: https://www.independent.co.uk/news/business/news/brexit-no-deal-latest-bank-of-england-warning-recession-financial-crisis-a8656561.html. Last accessed 9 July 2019.