In the UK, the price of buying a home is out of reach of many people. The house price varies considerably around the country and in major cities with prices being the highest in London and the south east. The UK average price for a house is £228 324 whilst the average household income is £32 247, roughly 1/8th of the house price (the figure given is income, not disposable income). Many people would struggle to find enough funds to make a deposit and a make mortgage repayments.
Mark Carney has warned that a “no deal” Brexit could cause a slump in the house price of up to 35% over the three years following the UK’s chaotic departure. The Bank of England asked UK banks to undergo a “stress test” based on a 33% collapse in the house price. The Bank of England is confident that UK banks would be able to withstand such a shock, but for individuals it may be another story.
In a chaotic Brexit, it is likely that the value of Sterling would fall – how badly would depend on market confidence and is hard to gauge. This would push up inflation (since imported goods would become more expensive) and probably require that the Bank raised interest rates to support the value of Sterling. This increase in the interest rate would inevitably lead to more expensive mortgages, putting pressure on households already paying as much as they can afford to service existing borrowing costs. The house price would tumble, leaving many householders owing more than their home was worth (negative equity). As some realise that they cannot meet their obligations, they would be left with a choice to sell up or risk their home being repossessed at a later stage (with less money returned to them). As more homes would go onto the market, chasing a dwindling number of UK buyers, the property price would be under negative pressure.
Whilst in any downturn, some would remain in their homes and worry about negative equity if it was still a problem when they eventually sold, others would be driven to sell through a range of factors from no longer being able to service the mortgage, job loss/relocation to divorce or death in the family.