Brexit to crush house prices by 18% says George Osborne

Chancellor fires new economic missile in campaign to persuade Britons to vote to stay in European Union on 23 June

Ben Chu
Friday 20 May 2016 22:03 BST
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House prices could slide by between 10 and 18 per cent in the next couple of years if Britain votes to leave the European Union on 23 June, the Chancellor George Osborne has predicted in the latest economic missile fired from the Remain campaign in the debate.

The Chancellor made the warning at the G7 meeting of finance ministers in Japan and claimed it was based on Treasury modelling of the short-term economic impact of Britain voting to depart the 28 member bloc next month.

“Next week the Treasury is going to publish analysis of what the immediate impact will be and one consequence of leaving the European Union is that there would be a hit to the value of people’s homes of at least 10 per cent, and up to 18 per cent” Mr Osborne said in a BBC interview.

The Chancellor also said the cost of mortgage repayments would rise, citing an “immediate economic shock that will hit financial markets”.

The figures cited by Mr Osborne suggest the Treasury is assuming a shock to the housing market similar in magnitude to that experienced in the global financial crisis. House prices, as measured by the Nationwide, fell 20 per cent between 2007 and 2009.

But over the past seven years house prices have recovered strongly, rising 34 per cent. This has far outstripped wage growth and has exacerbated an affordability crisis for first-time buyers.

Britons have traditionally been sensitive to house prices because a very large proportion of many families’ net worth is tied up in housing. Research also suggests people’s spending patterns are influenced by house values, implying a fall in house prices could also deter spending, which would damage the overall economy.

The Treasury pointed that Deutsche Bank, the economic consultancy CEBR and the credit rating agencies S&P and Fitch have already warned of the negative impact of Brexit on UK house prices.

Last week the IMF in its annual analysis of the UK economy warned a leave vote “could entail sharp drops in equity and house prices”. But in its own words on the short-term impact of Brexit, also last week, the Bank of England did not explicitly mention house prices. Nevertheless, the Bank did warn that a vote to leave “could materially alter the outlook for output and inflation”.

The is now clear consensus from independent economists that Brexit would be harmful to the UK economy. 196 economists signed a letter to The Times last week saying that leaving the UK “would entail significant long-term costs” and “a sizeable risk of a short-term shock to confidence”.

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