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Bank governor: worst-case no-deal Brexit could cause house price crash

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Written by: Owain Thomas
14/09/2018
Bank of England governor Mark Carney has spelled out the potential worst-case scenario of a no-deal Brexit which could result in house prices falling by a third.

According to reports the governor warned prime minister Theresa May and the cabinet that a chaotic no-deal Brexit could be worse than the 2008 crash – with the bank unable to act.

The warning was based on the Bank of England’s worst-case stress tests that it undertook last November, which all the tested banks passed.

However, reports suggest Carney used the meeting to highlight how severe the impact of a no-deal Brexit could be to the UK economy and that the bank would be unable to act by cutting interest rates this time.

YourMoney.com’s sister title, Mortgage Solutions, has contacted the Bank of England for comment.

Not a general expectation

TM Home Investor Fund chief investment officer Andrew Smith noted that a 35% fall in house prices was twice as large as after the global financial crash in 2008, and the causes would also be very damaging to other markets.

“While residential property markets do suffer in a crash, the sector’s usual defensive qualities relative to equities and commercial property would apply to a Brexit-driven crisis, as they have in crises in the past,” he said.

“In the Treasury’s latest survey of independent forecasts in August, only one forecaster predicted an overall house price decline, of 3% for this year, and none predicted declines in subsequent years, so this worst-case scenario is clearly not a general expectation.”

He added: “My sense is that we are probably now close to the point of maximum uncertainty and adverse impact on business and consumer sentiment.

“One way or another, as the shape of a deal emerges, or conversely the prospect of no deal becomes a reality, some of the fog will clear, and decision-making processes will start to adjust to the new climate.”

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