How will Brexit affect house prices and mortgages?

With the UK’s Brexit transition period set to end on December 31, the national focus has now turned back on to our exit from the EU.

For homeowners looking to buy or sell, and landlords, the question is: How will Brexit affect the property market in 2021?

Here, we’ll explore what our departure from the EU could mean for property prices and mortgage rates…

House prices after Brexit

In order to assess what may or may not happen to the property market after the Brexit transition period, it’s helpful to look at what’s happened so far, since the EU referendum in 2016.

Property prices right now

The referendum probably seems like a lifetime ago, but you might recall the Bank of England predicting a 35% drop in property prices over three years should the UK leave the EU without a deal.

That level of decline now looks extremely unlikely, especially when you consider:

The average price of a home in the UK rose from £217,88 in September 2016 to £239,196 in August 2020
That average price growth reflects a 9.7% rise
Property prices in the UK have grown by 6.6% in 2020, despite the coronavirus pandemic

The ‘fresh start’ mentality

After a 2020 most of us would rather forget, many buyers and sellers are already in the ‘new year’ mindset and looking to make changes and take action.

More than 130,000 sales were agreed in November – up 44% on 2019 – as buyers look to make those changes and start 2021 in a new home with a ‘fresh start’

The stamp duty ‘holiday’

With stamp duty rates set to revert back to their pre-Covid-19 figures from April 1, 2021, the first few months of the new year is looking like it will be busy, which could help fuel price growth.

Many buyers are continuing to search for their next home as they look to beat the deadline and save up to £15,000 in stamp duty before the ‘holiday’ ends.

That should ensure an active first quarter of 2021.

House price predictions for 2021

With the UK set to sever ties with the EU completely from January, alongside the ongoing uncertainty caused by Covid-19, price predictions for 2021 remain on the cautious side of optimistic.

In its latest house price index, Rightmove has forecast price growth of 4% in 2021, with the portal claiming housing will remain high on priority lists despite the economic uncertainty caused by Brexit and the pandemic.

PriceWaterhouseCoopers (PwC), however, estimates more modest growth of 1%, while the Office for Budget Responsibility is predicting 4% growth in property prices through 2021 followed by ‘strong growth’ in 2022

Mortgage rates after Brexit

With interest rates falling to their lowest rate in history at 0.1% in March, borrowing remains largely affordable for buyers and investors.

There are even suggestions that rates could enter negative territory for the first time in the new year as the Bank of England looks to support the Covid-ravaged economy.

Those low rates mean mortgage holders on tracker or discounted rates will be enjoying lower monthly repayments, but those on fixed rate mortgages remain unaffected.

Tracker and discounted rates follow the Bank of England’s interest rate and can go up or down.

Fixed rates, however, can help mortgage holders budget and provide peace of mind that monthly repayments won’t charge for a set period of time.

Since the referendum, fixed rate mortgage figures have fluctuated up and down, with the average two-year fixed rate mortgage coming in at 1.75% in 2016 and 1.85% in October of 2020, according to Bank of England figures.

For landlords, the average two-year fixed rate buy-to-let mortgage rate is now 2.52%, according to Moneyfacts.