George Osborne, speaking at the G7 finance ministers’ meeting in Japan, revealed that the forthcoming Treasury analysis on the short term economic consequences of a vote to leave will demonstrate a wide range of negative impacts on families and businesses, including the housing market.
 
It concludes that by 2018, home owners will be hit as growth in Britain’s housing market will be reduced by at least 10% and up to 18% compared to what is expected if the UK remains in the EU, as heightened uncertainty generated by Brexit hits financial markets, consumer confidence and home values. 
 
Independent authorities, including the International Monetary Fund, have warned that if Britain votes to leave the EU then mortgage interest rates would also rise because of financial market instability, meaning fewer people being able to get a mortgage and mortgage costs rising for all.
 
The Treasury conclusion follows warnings from Virgin Money’s Chief Executive, the CEBR, S&P, Fitch and Deutsche Bank about the potential negative impact on Britain’s housing market from a vote to leave the EU.
 
The Chancellor said finance ministers from other G7 countries attending the summit in Sendai confirmed that in their assessment, leaving the EU could cause significant financial market turbulence, affecting families and businesses.
 
The Chancellor also challenged the idea that negotiating a new relationship with the EU would be easy if the UK votes to leave, warning that instead it would be a long, costly and messy divorce.

In the coming days the Treasury is going to publish analysis of what the immediate impact will be. Osborne also said that mortgages will get more expensive and mortgage rates will go up.
 
‘If we leave the European Union there will be an immediate economic shock that will hit financial markets. People will not know what the future looks like. And in the long term the country and the people in the country are going to be poorer,’ Osborne said.

‘That affects the value of people’s homes and the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10% and up to 18%. And at the same time first time buyers are hit because mortgage rates go up, and mortgages become more difficult to get. So it’s a lose-lose situation,’ he pointed out.
 
‘We all want affordable homes, and the way you get affordable homes is by building more houses. You don’t get affordable homes by wrecking the British economy. And of course if we left the EU, mortgage rates would go up, it would become more difficult to get mortgages so they’d be hit as well,’ he added.

Critics of the new Treasury analysis are likely to point out that the fall in prices is only compared with where they would have been if there was no vote for Brexit. The independent Office for Budget Responsibility predicts a rise of 9.4% over the next two years and a further 5% over the following year.

However, most home owners have seen the price of their home rise by 9% in the last 12 months so the government forecast actually suggests that homes would be worth between 0.6% and 8.6% less in cash terms than they are now.

However, the run up to the vote on 23 June is having an effect on the country’s property markets. Estate agents are reporting a slowdown in sales and a wait and see attitude. Lawyers are reporting that investors in commercial property are adding Brexit clauses to contracts allowing them to pull out of purchases if the outcome is not favourable.

Law firm Nabarro said buyers were putting down deposits that would be refundable if the UK voted to leave. ‘We have seen a marked increase in the number of contracts which include clauses to protect the position of buyers investing in UK real estate ahead of the European Union referendum. Brexit is a leap into the unknown. Brexit clauses are a pragmatic, legal response to that uncertainty,’ said senior partner Ciaran Carvalho.

Research from global real estate consultants CBRE shows that 73% of investors in commercial real estate feel the UK’s attractiveness as an investment destination would be damaged by an exit from the EU. Only 7% of investors feel Brexit would improve the UK’s attractiveness.

‘There was just over £14 billion of investment into UK commercial property in the first three months of 2016, some 21% down on the same period in 2015. Early indications are that retail investment is down by around 30% on a year ago, possibly because investors are concerned about the consumer spending outlook in a Leave world,’ said Miles Gibson, head of UK research at CBRE.

‘While there are a wide range of factors affecting investment levels, including global economic conditions, these figures show that investors are unsettled by the uncertainty generated by the Brexit debate,’ he added.

A few days ago the developer behind new luxury flats in London said it would give buyers the chance to pull out of purchases if they did not like the outcome of the vote.

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