Brexit Uncertainty: Increased Home Repossessions and Evictions?
Long a topic of conversation and occasional speculation, fluctuating residential property prices are causing more concern than usual for intending purchasers and sellers around Britain. As the planned departure from the European Union has featured in news reports almost every day, recent attention has extended to other consequences: mortgage lending restrictions and – for borrowers who run into payment difficulties – property repossessions.
Across the spectrum of opinions that have become characteristic of the Brexit divide, one cannot help but note the earnestness of the views on both sides, with oft-opposing arguments. One thing is sure, however: the outcome of these Brexit discussions and debates will continue to influence sale asking prices. Not least, the current deadline looming at the end of October (2019) looks set to affect sales well into the autumn.
Against a shifting backdrop in political negotiations (or seeming absence of the same) and occasional confusion, headline comments and media reports have alerted their readers, viewers and listeners of general economic unease. In particular, the governor of the Bank of England, Mr Mark Carney, has portrayed what he considers would happen after a no-deal Brexit without any government intervention. Dismally, he detailed how the ensuing disarray could push many more mortgage borrowers into payment arrears than might otherwise have been the case.
Calculating the Cost
According to analysts at Mortgage Solutions, a leading broker, in the event of the UK leaving the EU without a deal the number of Britons with three months or more arrears in mortgage payments would probably exceed some 70,000. Set against a lower projection of 52,100 defaulting on monthly payments if Britain and Northern Ireland were to remain members, the higher figure represents an increase of some 30 per cent in the number of owner-occupiers affected. As a result, repossessions would probably rise by approximately a tenth.
Gloomily for sellers, house prices could decline at the same time. Apart from repossessions, tighter loan application criteria would not buoy up market conditions. In all probability, a reduction in available credit would provoke further stagnation and exert additional downward pressure.
In arriving at this disquieting prognosis, the analysts used similar modelling tools to those employed in the Westminster-based Office for Budget Responsibility. The vector algorithms used statistical techniques, including regression modelling, to analyse the performance of mortgage loans over the past two decades. The advanced mathematics took the affordability of payments, changes in selling prices and previous unemployment levels all into account. For the projection, house price inflation for the following five years was 18 per cent, with unemployment unchanged.
In contrast, analysts then set about calculating a second scenario. Instead, if the Bank of England were to step up its measures to increase liquidity in the banking sector after the planned Brexit takes effect, interest rates would reduce. Correspondingly, with even lower monthly instalments, several borrowers might be slightly better off – although the public finances would suffer.
Some financial experts have questioned the long-term sustainability of low interest rates. If and when economic conditions change, perhaps compounded by an eventual end to quantitative easing, market rates would move upwards. Inevitably, a proportion of homeowners might find their monthly payment levels rising and their household budgets overstretched.
In an October 2018 address, Mr Carney envisaged possible central bank intervention of up to £300 billion, should it become necessary, to free up lending and support the housing market. In the meantime, other reports have illustrated how a cross-section of working people feel that somehow, life is on hold. Whether the planned housing sale or purchase is for a single professional, a family looking for extra room or retired couples selling and move into sheltered accommodation or care, housing transactions are at their lowest level since July 2016.
Finally, various macro-economic factors may enter into the equation over the coming months. International uncertainties, including the escalating trade dispute between the US and China, could affect business confidence, currency exchange rates, share indices and – of course – the UK economy.