Though Britain voted to leave the European Union in a June 2016 referendum, the Brexit fun doesn't really start until the UK government triggers Article 50 of the Lisbon Treaty. That's when the formal two-year process of exiting the EU begins, and based on current plans it will be triggered by the end of March 2017.
Before the referendum, there were doom-laden predictions for the housing market if the Vote Leave campaign triumphed. One Treasury report suggested a worst-case scenario of an 18% crash in house prices. But whil the housing market felt turbulence in the aftermath of the referendum, there was no Armageddon. Things have largely carried on as before.
That is, however, because nothing has materially changed yet. The uncertainty surrounding Britain's future relationship with Europe will intensify with the triggering of Article 50. The negotiations are likely to be fraught and complex, as the EU tries to balance the interests of the remaining 27 member states, and the UK vies to keep open important trading routes.
The economy is therefore anticipated to weaken as investment stalls — and that could have consequences for the residential property market.
"The prospect of weaker economic growth and greater pressure on household finances is expected to remove any significant upward pressure on house prices over 2017 and 2018," said Lucian Cook, head of residential research at Savills, in his forecast for the market.
"In this period, fragile consumer sentiment is likely to offset any boost from low interest rates. A pick-up in economic growth and confidence from 2019 – as the future political and economic landscape becomes clearer – is expected to underpin a return of house price growth."
Savills expects house prices to be flat on average across the UK during 2017. At a regional level, London is predicted to see a sharp slowdown, outpaced by other areas in the country.
The London market, in particular prime property, will be hit hardest by any negative knock-on effects of Brexit. The city's large financial sector fuels demand for high-end property. And the City of London is among the sectors most exposed to a bad Brexit deal, particularly if it loses so-called "financial passporting" for banks, which allows them to operate many services freely across most of Europe. This would compound existing issues in the London market, such as a lack of affordability.
However, an extended period of weakness in sterling against the US dollar could incentivise greater overseas investment in the London market by making it relatively cheaper to buy property. Investors would, of course, have to overcome any Brexit-linked worries about the general health of the UK economy, and stomach a series of recent tax hikes on the property market.
'Modestly slower house price growth'
The building society and mortgage lender Nationwide believes house prices will continue to rise in the coming year in the face of Brexit, though at a slower rate amid the uncertainty.
"Looking forward, house price prospects will depend crucially on developments in the wider economy, around which there is a larger degree of uncertainty than usual," said Robert Gardner, Nationwide's chief economist, in his housing market outlook for 2017.
"Like most forecasters, including the Bank of England, we expect the UK economy to slow modestly next year, which is likely to result in less robust labour market conditions and modestly slower house price growth.
"But we continue to think a small gain (around 2%) is more likely than a decline over 2017 as a whole, since low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices."
"Looking ahead to 2017 we expect weaker growth in real household incomes and concerns over the impact of Brexit on the economy to weigh on housing market sentiment, particularly in southern England," said the report. "While the economy is projected to grow in 2017, levels of employment are forecast to grow more slowly although mortgage rates are expected to remain low by historic standards."
So that is it: we do not really know how Brexit will affect house prices in 2017 other than to say the uncertainty around the negotiations will likely weaken the economy, and that could curtail demand in the housing market by making people worse off, or by constricting mortgage lending.
House prices should therefore grow more slowly, but remain underpinned to some extent by an ongoing shortage of supply and ultra-low interest rates. And that will be the case until the terms of any UK-EU deal come into focus, and a greater degree of political and economic certainty returns.