Long-term thinking: Property prices post-Brexit

As the ripple effects of Brexit develop in unexpected ways the historical resilience of house prices is good news for equity release customers, writes Andrea Rozario

The complete impact of Brexit is, at the present moment, impossible to predict. People are asking questions, and right now there are very few concrete answers. When will the pound recover? When will we actually leave the European Union? Will we see another general election? What will happen to house prices?

In truth, I’m as uncertain as everyone else. But to the question on house prices, this is particularly pertinent to the equity release market.

Many are comparing the aftermath of Brexit with the recession of 2008, and millions could well be concerned that their biggest and most important asset – their home – may suddenly dip in value. These concerns are valid, but it’s essential to understand what has happened to house prices throughout history to have a reasonable understanding of how they may fare moving forward.

Of course, there can be no guarantees, house prices can rise or fall like any other market, but one thing is certain, property has been one of the safest and most lucrative investments in the country over the past 40 to 50 years.

According to data collated by Nationwide, you could pick up the average house in the United Kingdom in 1975 for just over £10,000. Last year, however, the same home would set you back around £190,000 – nearly a 20-fold increase in 40 years. For the average equity release customers, who the Equity Release Council now state are just over 70-years-old, it is likely that many purchased their first home in the 1970s and most have seen a pretty solid return on their initial investment.

Fair enough, these figures do not equate for the impact inflation will have had over the 40-year period, but over long-run averages the Equity Release Council claims that house prices have increased 5% annually since the 1970s. Regardless of inflation, anyone who got on the housing ladder in the ‘70s and either continued to climb or stayed put, has done pretty damn well.

Past performance

Of course, these figures will probably mean little to people right now. The same questions and concerns will reign. ‘That’s the past. What will happen in the future?’ people will ask, and quite right. So let’s take a look at what happened to house prices in the aftermath of the 2008 recession – the worst recession since the Great Depression of the 1920s.

Here’s a hint: it wasn’t that bad!

In 2007, just before the recession hit, average house prices rose 9% compared to the previous year and were hovering around the £180,000 mark. When Lehman Brothers went under and stock markets the world over went into a tailspin the next year, the impact on house prices was sharp, but not long lasting.

Throughout 2008, house prices in the UK fell by an average of 6.7% and continued falling into 2009. The first three quarters of ’09 were pretty rough – averaging at 10% decline nationwide – but then in Q4 prices rose 3.4%. By 2010, the housing market had recovered more ground as average prices jumped 8.8% year-on-year in Q1 and then 9.5% in Q22. On average, house prices certainly did dip in the aftermath of the recession, but the recovery was rather swift.

Even when we have experienced recession, including catastrophic recessions like 2008, house prices have not dropped dramatically. What’s more, as a home is generally a long term investment, riding out the odd blip is par for the course for every homeowner. Retirees, as well as anyone else currently on the ladder, should therefore take great solace in the fact that house prices in this country have been historically resilient and rebound incredibly quickly.

I have no crystal ball to consult, and I don’t know for sure what will happen with the future of the UK housing market, but I know that looking to the past is a good way to be prepared for the future – and it seems to me that house prices will continue to increase over the long-term regardless of the current Brexit bedlam.

Andrea Rozario is chief corporate officer at Bower Retirement Services