BOE governor's dire UK housing scenario deemed 'highly unlikely'

London

ECONOMISTS aren't buying Bank of England governor Mark Carney's dire scenario of a UK housing crash in the event of a chaotic no-deal Brexit.

Home prices are "highly unlikely" to plunge as much as 35 per cent in three years in a worst-case warning laid out last week by Mr Carney, according to a survey of 10 economists by Bloomberg News. Values would decline 10 per cent or less, according to six of the respondents. The remaining four said values could decline more than 10 per cent but not as much as 35 per cent.

The survey offers a more optimistic view on the prospects for UK's property market as analysts and economists are trying to parse divergent signals. It adds to encouraging signs this week pointing to a rebound in home prices after the longest losing streak since the financial crisis. Data compiled by property website Rightmove this week said asking prices for UK house prices rose 0.7 per cent in September, led by stronger sales. Nationwide, home values in August notched the first increase in five months, according a report by Acadata.

In the event of a soft Brexit, seven respondents said home prices could rise 5 to 10 per cent in London, where demand outstrips supply. Two said they would rise by more than 10 per cent while only one said they would continue to stagnate or fall.

In addition to the economists surveyed, who provided price ranges for home values across different possible outcomes, market researchers interviewed by Bloomberg also didn't expect such a gloomy scenario to unfold for the UK housing market.

Here are views from four researchers on what they see happening next in the UK's £7.14 trillion (S$12.83 trillion) housing market, of which London represents about a quarter.

Lucian Cook, research director at Savills Plc in London, said: "The estimate comes from an extreme scenario used to test financial stability so it will be at the far end of a range of scenarios", although a long way from a scenario of a soft Brexit. Mr Cook, who said a 35 per cent plunge would be highly unlikely and "unprecedented", points to far smaller declines as Britain left the European Exchange Rate Mechanism, with prices falling about 20 per cent from late 1989 to early 1993. During the throes of the financial crisis, prices fell about 19 per cent from the third quarter of 2007 to the first quarter of 2009.

Faisal Durrani, head of research at Cluttons LLP, said : "Clearly Brexit and the uncertainty it is throwing up as we race to the March 2019 separation from the EU is impacting job creation rates as some businesses move into a holding pattern, but vacancies are rising across the board." Other issues such as affordability and tax levies remain "far bigger challenges". His forecast for Central London remains subdued and unchanged in light of Mr Carney's warning, with cumulative growth of 4.7 per cent expected over the next five years, with Greater London seeing 12 per cent growth over that period.

Neal Hudson, founder of researcher Residential Analysts, said: "Mr Carney was talking about a worst-case scenario and a hard Brexit with rising interest rates and unemployment. Thirty-five per cent is probably overdoing it." Mr Hudson predicts that the correction may be more than 5 per cent but less than 35 per cent.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said there's more caution on the part of sellers and buyers, and this adds to uncertainty in the market. The danger is that developers will delay new projects, and there is a risk that the narrative could alter the mentality of buyers. "Even if you are a bit gloomy, it's hard to see prices falling to that extent," he said. "In the event of hard Brexit the risk is that values in London and the south-east could soften further but the UK as whole will probably be okay." BLOOMBERG