The housing market will experience a significant slump if Theresa May fails to secure a deal with the EU and the UK crashes out in May next year, it has been predicted.
The warning has come from global ratings agency Standard & Poor’s which says house prices will dip by 9.5% and possibly more following a hard Brexit and a consequent two-year economic recession.
“We estimate that household income could decline by £2,700 per year on average over 2019-2021,” its report on a hard Brexit says.
“Declining household spending and weaker demand would also, by 2021, lead to significant house price declines, ending up 15% below the levels that we expect in our base-case forecasts.”
It also says that inflation will spike to more than 5% and that the UK’s credit rating could be downgraded, raising the cost of borrowing for the government and scotching Philip Hammond’s plans set out in Monday’s budget.
Painting a somewhat doomsday scenario, Standard & Poor’s says the housing market would be hit hard when unemployment increased to 7.4% in 2020 and that the house price slump would unfold during the run up to 2021.
“Our base-case scenario is that the UK and the EU will agree and ratify a Brexit deal, leading to a transition phase lasting through 2020, followed by a free trade agreement.
“But we believe the risk of no deal has increased sufficiently to become a relevant rating consideration. This reflects the inability thus far of the UK and EU to reach agreement on the Northern Irish border issue, the critical outstanding component of the proposed withdrawal treaty.”
Read S&P’s report ‘Countdown to Brexit: No Deal Moving Into Sight’ in full.