How Will the Brexit Deal Affect Peterborough House Prices and Your Mortgage Payments?

Christmas Eve brought the news that Boris Johnson had conclusively agreed on a Brexit deal for the UK with the European Union. This gave optimism that the economic turmoil of leaving the EU would be radically reduced, yet what will this ‘trade deal’ do to the value of your Peterborough home and the mortgage payments you will have to make?

Since the summer, the Peterborough property market has been booming, yet many commentators have cautioned that the momentum cannot last. With unemployment and the end of Stamp Duty Holiday on 31st March, the Halifax reported last week that they believed UK house prices would drop by at least 2% (and in some areas 5%) in 2021.

I find it fascinating the Peterborough property market has defied the doom and gloom swamping the wider British economy in the last seven months. The Peterborough property market has profited from the large swell in demand from better-off existing Peterborough households trying to buy larger Peterborough houses (as they are required to work from home) together with the added benefit of saving money from the Stamp Duty Holiday.

Peterborough house prices are 0.3% higher than a year ago, making our local authority area the 363rd best performing (of the 396 local authorities) in the UK.

With the Brexit deal being voted through in the Commons on the 30th December, many say this will boost the property market just as the Government-backed measures supporting the property market come to an end. Yet, in the face of rising unemployment due to the pandemic, the Brexit deal may do little more than avoid uncertainty for the Peterborough housing market.

What will happen to Peterborough house prices?

The Peterborough property market in 2019 was held back because of the uncertainty of the Brexit deal. In January 2020, we saw the demand released in the fabled ‘Boris Bounce’, only for buyer and seller activity to fall off a cliff in March during the first lockdown. It then took off like a rocket once lockdown was lifted. UK house prices are 4.19% higher today, year on year (although some areas are breaking the mould, like Aberdeen whose house prices have dropped by 5.1% and at the other end of the scale, Worcester’s house prices have increased by 11.9% year on year). A lot of that growth in UK property prices has been fuelled by buyers spending their stamp duty savings on the purchase price of their new home. Yet, it cannot be ignored.

Of the 103,800 workers in Peterborough, 5,700 are still on furlough (although roughly 40% of those people are still only on part-time furlough).

When the furlough scheme ends in April 2021, unemployment is likely to rise to in excess of 11%, whilst the protection for the homeowners utilising mortgage holidays will finish. 

Piloting the rocky shoreline of the recession is more important than any Brexit deal for Peterborough homeowners, buy-to-let landlords, buyers and sellers.

In April, the market will also be dealing with the end of the Stamp Duty Holiday, which is due to come to an abrupt halt on the 1st April 2021. Consequently, we will continue to see the house price index’s show growth in the first half of 2021. They will then recede as the  prices of Peterborough homes purchased after the 1st April 2021 reflect the lower price paid (because buyers would have had to pay for their stamp duty again). Therefore, probably by the end of 2021, the Halifax may be correct, and Peterborough house prices will be 2% to 5% lower than they are today, simply because of the stamp duty.

What will happen to mortgage rates?

The real benefit from the Brexit deal is that there will be no tariffs on most goods coming into the UK. 52% of all goods imported into the UK are from the EU (totalling £374bn per annum). The UK Government were planning to add between 2% and 10% tariffs under World Trade Organisation rules on the vast majority of those goods. Price increases because of those tariffs would have fuelled inflation, meaning the Bank of England would have to increase interest rates. Although 77.2% of British mortgages are on fixed rates (paying an average of 2.16%), eventually those increased Bank of England rates would have fed through into higher mortgage payments. To show you how vital low interest rates are …

the average Peterborough homeowners’ mortgage is £327.26 pm, owing an average of £133,424.

Yet if interest rates rose only 1.5%, Peterborough homeowners’ monthly mortgage payments would rise to £494.04pm, and if interest rates were at their 50-year average, then the mortgages payments would be an eye-watering £962.13pm (note all mortgage payment figures mentioned above are only for the interest element of the mortgage- the capital repayment element would be additional and variable depending on the length of mortgage).

As I have mentioned many times in the articles I have written about the Peterborough property market, low interest rates are vital to ensure we don’t have a property market crash. That’s not to say just because they are at an all-time low of 0.1% to aid the economy that there won’t be some form of realignment of property prices later in the year (as mentioned above). Yet low interest rates mean people can still pay their mortgages, so there won’t be panic selling. That would mean there won’t be a flood of property come to the market (like there was in the 1988 and 2008 property crashes when interest rates were much higher), suggesting property prices should remain a lot more stable.

No Deal Brexit – The Prediction For Peterborough House Prices

Roll the clock back to April 2020, and major financial economists and property market commenters were sounding the alarm. The very best-case scenario was a 5% drop in property values by the end of the year, and most were in the 10% to 15% range. They forewarned the Covid-19 stimulated recession would trim tens of thousands of pounds off the value of Peterborough homes.

Yet the Peterborough property market seemed not to get the memo on that, and now as we find ourselves at the end of 2020 and the worst of lockdown restrictions appear to be passed, vaccinations on the way and economy starting to grow, Peterborough property prices seem to be doing quite well.

What happened to the Peterborough house price crash that wasn’t?

Before I answer that, it reminded me of what the Treasury said in 2016 about a leave vote on the Brexit referendum. The considered opinion of the Treasury was house prices would drop by 18% if the Country voted to leave the EU, so let us see what that would have done to Peterborough house prices if that had taken place and then what exactly has happened in the last four and half years …

 Average Value
2016
Predicted Drop By The Treasury because
of Brexit
Average Value
Today
Uplift in Value
in Last 4.5 Years
% Increase Since
Brexit Vote
Peterborough
Detached
£282,400£231,600£313,500£31,10012.0%
Peterborough
Semi
£179,000£146,800£196,900£17,9009.0%
Peterborough
Terraced/ Town House
£145,200£119,100£155,700£10,5008.2%
Peterborough
Apartments
£108,100£88,600£120,300£12,20010.3%

So why has the Peterborough property market not matched the

property pundits twice in the last five years or so?

Well for most of us, owning a property is about having somewhere to live rather than an investment (an Englishman’s home is his castle??). Nevertheless, once a homeowner is on the proverbial ‘property ladder’, it cannot be denied that it is eternally beneficial to know, as a homeowner, that you have made a healthy investment in your home and that the value will rise to alleviate the ache of trading up market — or down market when you retire.

Those Peterborough homeowners who own detached homes would have made an average of £31,100 profit, a rise of 12.0% or a weekly profit of £119.62 — calculated between the price they would have paid in the summer of 2016 and the price they would sell for today. Looking at the weekly profit for all property types in Peterborough since the Brexit vote …

  1. Peterborough detached homes weekly profit of £119.62 per week
  2. Peterborough semi-detached homes weekly profit of £68.85 per week
  3. Peterborough terraced homes/town houses weekly profit of £40.38 per week
  4. Peterborough apartments weekly profit of £46.92 per week

Whilst it is no surprise the property market boom was inspired by the Chancellor’s Stamp Duty holiday, this is not exclusively the Chancellor’s achievement. The three ‘D’s have been with us throughout 2020, Covid or no Covid (Debt, Divorce and Death), together with a huge shift in the way Peterborough homeowners see their homes.  With us cooped up during the lockdown and working from our dining room tables, the want and need of Peterborough people to have a home with an extra bedroom to work from, together with a garden, has been one of the most challenging this year… hence the rise in demand.

So, what of 2021? It’s true that the country will have high unemployment, yet at the same time, we have ultra-low interest rates and for the last 20 years, on average we have only built 150,000 households per year as a nation, but needed 300,000 per year to keep up with immigration, people living longer and changes in the way households are made up (compared to the Millennium).

Many people can predict what will happen – yet none of us really know what will actually happen to the Peterborough property market in 2021.

Covid was a black swan event and the fallout from that, I believe, has changed Peterborough peoples’ lives and their lifestyles, especially how they see their home. Instead of making predictions, nothing can get away from property market fundamentals, which have driven price booms on the back of high demand for homes and low supply (i.e. properties coming onto the market) and price crashes on the back of over-supply and low demand. Only time will tell if, in 2021, the Peterborough property market will see a flood of properties coming to the market because of debt or the demand for larger homes continues to rise unabated.

Please let me know your thoughts on the matter.