EDITOR'S LETTERMerryn Somerset Webb
The Brexit effect on house prices
When David Cameron agreed to a referendum on EU membership, I suspect he thought it would be an easy win. He clearly doesn’t now. The prime minister has rolled out every big hitter he can find to back his claim that British and global security will be at risk if we vote leave. But George Osborne has gone a step further – straight for the thing the British care most about: house prices.
The chancellor reckons there will be a “significant hit to the value of people’s homes and to the cost of mortgages” if we vote out. He may be right. But he may be wrong – if Brexit is the disaster he says he expects, surely interest rates are more likely to fall than rise? If Brexit causes an EU collapse and security meltdown, might there not be a flood of French house buyers into the safe haven that is, and presumably still will be, London? House prices could go up, not down.
And Osborne might be on dodgy ground appealing to people to vote to keep house prices high. It’s worked for years. The UK has long been a nation of homeowners – what would be more natural than for those homeowners to want the price of their major asset to rise and rise? But times have changed. The percentage of households that own a home is falling (it is at its lowest for 29 years). The percentage of renters is rising. And, as prices have risen far beyond salaries, the average age of the first-time buyer has shot up: ten years ago 59% of the 25-to-34 age group were owner occupiers. Now it’s 36%.
The result? Parents and grandparents have begun to fear that their young will never have the security of owning their own home. And they are trying to find ways to help out. That means the return of the 100% mortgage guaranteed by a parent. And the rise of the Bank of Mum and Dad (forecast by Legal & General to be involved in 25% of all mortgage transactions this year) and the introduction of new age limits: Nationwide is now to let borrowers keep their loans until they are 85.
This is worrying. It is also, I think, changing the way people think about houses. The 7.4 million owners with no mortgages no longer need prices to rise (they live in their houses). They need them to fall – so their families can have houses too. If Osborne keeps going on about Brexit pushing house prices down, he might find that Brexit is exactly what he gets.
For more on this and everything else to do with the referendum, see our exclusive MoneyWeek interview with Boris Johnson in this week’s issue on why he reckons the only safe thing to do on 23 June is to vote Leave.