Mark Carney: A No-Deal Brexit May Cause House Prices To Fall By A Third

Photo by Bank of England via Flickr

In a briefing to the cabinet that was held last Thursday, Mark Carney, the governor of the Bank of England, said that house prices could fall by 35 percent over the period of three years in the event of a no-deal Brexit.

Reports that were released on Thursday revealed that Carney said that once the United Kingdom crashed out of the European Union without a deal, a sharp increase in mortgage rates could greatly affect the housing market of Britain.

The governor was talking to ministers regarding the preparation of the Bank for what would happen if the United Kingdom left the European Union without a Brexit deal this coming March.

Carney presented three scenarios. It included one in which a skeleton deal was agreed upon, one in which some arrangements are made and one where the United Kingdom crashed out with no deal.

In the latter scenario, he said that the sterling would tank, raining the interest rates and inflation and causing mortgage firms to pass on the higher risk premiums to the homeowners.

Carney also said that there would be an increase in the rate of unemployment and the United Kingdom would observe more emigration than immigration for the first time since 1994.

He said that the Bank would not be able to reduce the interest rates to cut the effect of a no-deal as that would only stimulate inflation.

Philip Hammond, the British Chancellor, also warned that the cabinet that the United Kingdom would not be able to utilise tax cuts to improve the economy due to the effects that a disorderly Brexit would have on the finances of the public.

The briefing came as Dominic Raab, the Brexit secretary, emphasised that he continued to confident that a deal will be achieved, despite the preparations of a no-deal scenario.

On Thursday, the government warned that the driving licences in the United Kingdom may not be valid in the European Union in the event of a no-deal Brexit.

On the same day, HM Revenue & Customs said that it had written to 145,000 British companies in order to warn them of the changes to cross-border trade in the event of no deal being reached.

That will include applying customs and excise rules to goods that are traded with the European Union, in the same way that is already applied to goods that are traded outside the bloc.