A Vote for Brexit Could Hit House Prices and Mortgages Costs

As George Osborne continues to support Prime Minister David Cameron’s campaign to persuade Britons to vote to remain in the European Union at the June 23rd referendum,

the chancellor is focussing on the value remaining ‘in’. In his latest comments on the topic, Mr. Osborne has stated that not only could we earn less due to a number of reasons, but, the value of our homes could fall while the cost of the mortgage most need to buy one, will rise.

Speaking on ITV’s Peston on Sunday show recently, Mr. Osborne gave a very clear warning that home-owners and potential home-owners could suffer financially.

“"The value of people's homes will be affected and people trying to get on the housing market will be hit because mortgage prices will go up,” Mr. Osborne said. “This is an example that this isn't just a big question of who we are at the moment, it also goes to the heart of people's financial security."

This potential double whammy could scupper many first-time buyers hopes of buying a home, despite a fall in the average price of UK property. The claim that mortgage costs could rise isn’t just being made by Mr. Osborne.  Jayne-Anne Gadhia, CEO of Virgin Money said in recent weeks that if Britain voted to leave the EU, that would produce an “economic jolt” to the UK which would include higher interest rates on mortgages and credit cards.

Of course, with the chancellor clearly in the ‘in’ camp, it stands to reason that he is publicising as many possible reasons for remaining part of the EU as he can. But, can his claims be proved? At the moment, the Treasury is working on more research and Mr. Osborne said that at the moment that details of the report - which will be complete in the coming weeks - definitely suggests house prices will fall and mortgages will go up.

Regardless of your views on whether the UK should remain part of the EU or not, the financial claims do bear some thinking about. And, if certain things happen, such as a decline in foreign investment in the property market and banks then it is a rational result that house prices could fall – because there is less demand and that mortgages go up - because if banks are attracting less investment they may need to raise cash in other ways, including by hiking their interest rates.

Of course, other elements will continue to affect the UK’s housing market. If the supply of property remains below the demand for it, then any fall I prices isn’t likely to be too severe. However, if mortgages become too expensive then demand will likely slowdown which means house prices could fall more sharply.

There’s also the possibility that of the UK leaves the EU that it won’t really have much impact on investment and activity at all and things will remain fairly similar to the way they are now.

As with many things, it’s impossible to know before the event. But I for one, will be interested to read the Treasury’s analysis on why it expects house prices to fall and mortgage to rise if the UK votes for Brexit.


Cron Job Starts