In May 2017, The National Association of Estate Agents figures show that the number of homes that sold for less than the asking price rose to 77 percent (Hawkes 2017), highlighting the precarious nature of the housing market as we approach Brexit and the economic turmoil that will follow. But what would a 90’s style house price crash actually mean for the housing market?
With a near 40% drop in prices, we would see a return to negative equity, where a homeowner owes more on their mortgage than the property is worth, a situation that effected over one million people in the 90’s crash. House prices would fall across the country, but homeowners in the more expensive areas would be hit the hardest. With average prices in the South East currently £315,807, a 40% fall would see them lose £62,480, falling to £253,327 (Hodgkin 2017). For homeowners who live in the property, this is a problem, for buy to let landlords, a reduction towards negative equity can cause real problems, potentially forcing a flood of sales that would further drive prices down.
The immediate issue of falling prices is not all, as with 2008, the medium-term story is how does the market recover, and what are the lasting effects on the future housing market. According to national agency eMoov, who used data from the Land Registry and historical comparisons with previous severe price crashes, to look at what the crash could do. Using all the available data, eMoov determined that in some areas, such as Wales and Yorkshire, housing prices could take over nine years to recover to pre-crash levels (Hodgkin 2017), leaving hundreds of thousands of people in negative equity for an extended period of time.
The shadow of a housing crash is looming ever larger as the Brexit process moves forward, but the main issue with making these kinds of predictions about the aftermath is a simple one, we still do not know what Brexit will actually be. Until we are much further along the negotiation process, what Brexit will actually look like, and therefor just what economic impact it will have, remain unknown. The housing market will be effected by whatever happens, that much is certain, but what that something is will decide just how it is affected.