Mark Carney warns no-deal Brexit could cause massive house price falls

14 September 2018

Homeowners could be at significant risk of crashing house prices in the event of no deal being struck between Britain and the EU, the governor of the Bank of England has reportedly told the cabinet.

Reports from several national news outlets suggest that during a meeting with the cabinet on Thursday afternoon, Mark Carney the governor of the Bank of England cautioned that a 'worst-case scenario Brexit' would lead to a housing market price crash of up to 35%.

According to the BBC the Bank of England carried out “stress tests” in November last year that found a 33% fall in house prices would occur in a worst-case scenario – where Britain left the EU with no deal, no transition and no government preparation. 

The government released a series of Brexit no deal assessments on Thursday to give more clarity to the public and businesses of its preparedness in the event no deal is struck with the European Union.

A Downing Street spokesperson told the BBC that government ministers were confident of a Brexit deal but had increased their no-deal planning.

The spokesperson said to the BBC: “As a responsible government, we need to plan for every eventuality. The cabinet agreed that no deal remains an unlikely but possible scenario in six months' time."

Moneywise approached the Bank of England for comment but none was forthcoming. 

What a no-deal Brexit could mean for homeowners

The Bank of England’s worst-case scenario says that house prices could fall by up to 33% over three years in the event of a messy divorce from the EU.

This could lead to homeowners becoming trapped in negative equity if their mortgage debt is higher than the value of their property.

Retirees reliant on the value of their property to help fund their retirement could also be negatively affected as the wealth stored in their homes reduces.

Will Hale, chief executive of equity release adviser firm Key, says: “When we think about house prices, we need to bear in mind many different influencing factors. As a country, we are not building enough homes to meet our current needs so demand is likely to remain high and while we have seen house price fall in the past, over time, we have seen these offset by sustained periods of increases. 

"Until a person chooses to sell their property or refinance, any increases or falls are not actually realised."

Lower house prices could, however, prove a boon for first-time buyers hungry to snatch up cheaper property. This could also be the case for buy-to-let investors looking to expand their portfolios.

But the warning from the governor have been met with a dose of scepticism from some commentators.

Mr Hale adds: “The simple fact is that we do not actually know what is going to happen post Brexit as no one has a crystal ball. The Bank of England is responsible for delivering monetary and financial stability so it is their responsibility to look at the implications for all extreme scenarios – both good and bad – but is seems that only the negative assumptions have been picked up in the headlines."

Henry Pryor, an independent property expert, agrees: "Don’t panic, this is highly unlikely to have been what the Governor told the cabinet, less than a year ago he explained in detail that the Bank of England had modelled the worst-case scenario of house prices falling by a third but that this is not what the Bank expects. 

"Prices may well slip in the first quarter next year regardless of a hard or soft Brexit - uncertainty just as we had over the Millennium Bug in 1999 will mean many buyers will postpone their purchase until next summer. Unless they are given a discount to reflect the perceived risk they are taking most buyers will just wait and see. 

"The main house price indices will therefore reflect these discounted prices but they will not be of the magnitude that has been reported. The Bank has planned for the worst but is not predicting that this is what will happen."

The stress tests conducted by the Bank of England also reflected a scenario where interest rates rose to 4% and unemployment jumped to 9%. However, these tests are designed to be a worst-of-the-worst type scenarios. 


In reply to by anonymous_stub (not verified)

These sort of so-called pie in the sky predictions are what causes so many monetary problems. By putting these "I reckon that...." stories out there, immediately people are put off buying now through believing scaremonger stories that have not even happened yet, hence the silly suggestions become a self-fulfilling prophesy before we even leave the EU. Sadly, the vote to leave was no doubt engaged as many lay people purely were fed up with the bad management of immigration and the idiotic Human rights rules from European parliament. Ironically, nothing is mentioned about those factors but everything else now appears "in jeopardy". Can someone start pointing out some of the good things that could happen if we leave? Or has it reached a stage where the government have messed up trying to get a decent deal organised and now we are at Europe's mercy?

In reply to by anonymous_stub (not verified)

I am sick to death of Mr Carney making negative, dismaying comments about Brexit, with his same old Project Fear. He needs to stay to doing his job at the bank. Although a home owner myself and not particularly looking forward to any drop in the market value of my property, we all know that properties are all over-priced in any case. Mr Carney please SHUT UP!! At the rate we have had of people coming in to this country and the demand on property that does not exist of purchasing or renting property to cover not only the existing people here but these new inhabitants this is not really likely is it?

In reply to by anonymous_stub (not verified)

Trying all angles so he can say "I told you so". Time for an optimist.

In reply to by anonymous_stub (not verified)

Mr Carney says that this drop will happen " with no government preparation"Well Mr Carney, and whose fault is this?Shouldn't the governor of the Bank of England be advising the Government how to prepare.

In reply to by anonymous_stub (not verified)

mmm... the older generation who supposedly voted 'out' stand to lose 35% or suffer negative equity as a result of their choice, but the younger generation who, according to the remoaners, voted 'in' maybe able to afford a property in the future. Your point is?

In reply to by anonymous_stub (not verified)

what an idiot of a man.

In reply to by anonymous_stub (not verified)

Mark Carney is anti Brexit and he has never had anything positive to say about the outcome.Martin Lewis was right before on another forum. You can actually talk yourselves into recession

In reply to by anonymous_stub (not verified)

Do these "financial experts" live in the real world?If house prices collapse, so long as it's uniform, so what?If I don't sell, I still enjoy the house.If I DO want to sell, then as my house is only worth say 25% of its original value, any house I'm interested in buying will also be only worth 25% of its value, which means that with a modest amount of savings I can now look to purchase a house which would previously been out of my league. Every £1k I add to my sales price is the equivalent of £4k.Also, how many times do you hear the phrase “Financial experts were today surprised by the …”.Insert your own ending – “market buoyancy”, “sudden rise in the FTSE 100”, “collapse of the American Dollar” etc.And these guys are experts???They also skilfully use words and phrases like “could be”, “suggest” “possibly”, “likely”, “of up to” “hints of” etc. These guys are supposed to be experts! Instead of “The FTSE will rise by 1% each quarter for the next seven quarters (hey, this guy’s a confident expert!), we get “indications suggest that a possible future rise in the region of 1% may be linked to gains attributed to the potential stability in international market trends”.Beware of Economists – they live in dark corners and juggle with misleading half-truths!

In reply to by anonymous_stub (not verified)

Typical. Mark Carney gets a BoE contract extension and then simply goes back to his same old Project Fear mantra concerning BREXIT. Cheap shot saying house prices will fall. For a supposedly educated man he is a real numpty! Hasn't he heard of supply & demand? Sooner he goes back to Canada the better! Is it only 'older' British people that have actually lived & experienced life that believe this is potentially a great opportunity for success. More positivity, less negativity please!!!

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