As outside chances continue to become inside chances in global politics,
the possibility that the UK could leave the European Union (EU) is increasing, with the latest polls from both YouGov and ICM suggesting that more people will vote to leave than to stay in the EU on 23 June.
This, combined with warnings from stay campaigner Chancellor George Osborne, European bank Deutsche Bank and credit ratings agencies S&P and Fitch that a British exit from the EU would shrink house prices overnight, has led to serious concerns over the British property market. What are the possible outcomes?
1 House prices fall
Most agree that house prices will fall in the event of a Brexit – at least in the short term. The stay camp, headed by the Chancellor and Prime Minister David Cameron, warns that average prices could fall by up to 18 per cent by 2018 if we leave due to tighter borrowing conditions across the economy. 
However, while they cite this as a major reason not to leave, the ‘Brexiteers’ say it’s a good reason to exit the EU, with Tory MP and House of Commons leader Chris Grayling arguing that staying in the EU would make buying a home increasingly difficult for young British people.
Some figures are already indicating a slowdown in house price growth on referendum concerns. Data from Nationwide and Your Move shows that the rate of annual house price growth slowed in May, with the former reporting a dip of 0.2 per cent in the year to May compared to April, while the latter claims an even sharper decline of 0.9 per cent.
2 Foreign direct investment dries up
Many believe that the impact of a Brexit on the property market would depend on its impact on the economy generally and how that, in turn, influences foreign direct investment. A survey conducted by KPMG earlier in the year found that 66 per cent of real estate experts believed that ‘Britain leaving the EU would have a negative impact on inbound cross-border investment’.
More recently international property consultancy JLL Asia-Pacific International Capital Group told CNBC that it saw a 30 per cent fall in UK transactions in the first quarter of 2016, with 45 per cent of investors expected to put off any buying or selling decisions until after the referendum.
While a reduction in foreign investment would hit London hardest, Guy Stephens, managing director at Rowan Dartington Signature argues it could have implications for the whole of the UK property market.
‘There has been a significant amount of overseas purchasing from Chinese, Russian and Middle Eastern buyers using the UK property market as a store of value in sterling. If the UK were to leave the EU then this demand would likely fall with all the associated wealth benefits. Some would say, “no bad thing”, but this will reduce demand.’
3 Buying spree
Following Chris Grayling’s optimistic line of thought, a sharp fall in house prices in the short term could prompt a buying spree, quickly re-inflating prices – or at least halting a downward spiral. Once again, foreign investors could lead this, many of whom would benefit if the value of sterling were to fall as a result of wider concerns over the UK economy. According to research conducted by JLL, 58 per cent of Asian investors are keeping a keen eye out for opportunistic investments in the London property market.
Naomi Heaton, chief executive of London Central Portfolio, adds that historically, the London property market tends to rebound strongly after a correction: ‘As has been demonstrated time and time again, Central London slows down in the face of investor uncertainty; be it after 9/11, during the Iraq war or after the market crash of the early 2000s. However, the market rallies quickly thereafter; in 2010, prices bounced back post credit crunch by 22.7 per cent, following a fall of 16.3 per cent the previous year.’
4 Buying freeze
What many believe is more likely, however, is that housing market activity will slow in the event of an EU exit as credit conditions tighten in the face of economic uncertainty. David Hollingworth, spokesperson for mortgage broker London & Country, says: ‘Mortgage borrowers are currently enjoying extremely low interest rates and greater choice as competition in the market has improved.
‘However, if an EU exit means funding costs for lenders increase, that could feed through into mortgage rates. This could fuel any uncertainty in the wider market, and if activity cools sufficiently there could be a significant impact on house prices.’
As prices tumble, panicked sellers might be pushed out into the market while savvy buyers sit on their hands as they wait for the bottom, starting a vicious deflationary spiral for house prices similar to that seen in the early 1990s.
Of course, in the latter scenario the house price crash was caused by record high interest rates introduced by a government fighting hyperinflation. While this is hardly the case today, should sterling weaken significantly post-Brexit this will push inflation up, prompting the Bank of England to raise rates, and this could do serious damage to heavily indebted homeowners.
5 Supply shrinks further
Of course, almost everything above hinges on the supply situation in the housing market, which has been woefully inadequate for years, if not decades, and which most commentators believe will put a floor under falling prices.
While the government promised 1 million new homes by 2020 in its last election manifesto, less than a third of homebuilders surveyed in May thought this was achievable, meaning demand is likely to continue to outstrip supply whichever way people vote on 23 June.
Moreover, as Stephens observes, this supply could shrink even further if the housebuilders find themselves under increasing strain: ‘As housebuilder shares fall along with their future revenues, then clearly they will not build as many houses, which could have implications for supply.’
Reduced supply tends to boost house prices, but this is only if people are willing and able to buy and – as set out above – under a Brexit scenario there is no guarantee that this will remain the case.
6 Don’t wait until year end
Simply by investing earlier in the tax year each year, rather than waiting until the last-minute rush, you can make a big difference to final gains. That’s partly because of the extra time your money is invested, and partly because the end of tax-year scramble tends to push prices up.
Fidelity did some research which found that £10,000 invested in January 2000 would have grown to over £35,000 after 15 years; the same sum invested just three months later was worth only £25,000.
7 Housebuilder shares feeling the heat of the referendum
Shares in UK housebuilders are particularly vulnerable to a post-Brexit market correction, due to a strong run that has seen valuations reach record highs. Some of the most exposed are:
Berkeley Group (LON:BKG): According to Stephens, Berkeley is particularly vulnerable to a any negative shock from an EU exit due to its heavy exposure to prime central London property and its large foreign clientele. Shares have shed over 12 per cent since the start of the year and 20 per cent over the last three months.
Barratt Developments (LON:BDEV): like Berkeley, Barratt has seen shares slide almost 10 per cent in the year to date, reflecting concerns over the referendum result. It is generally favoured by those interested in the sector, however; when polls suggested a stay vote was more likely in May it saw double digit reruns over the month. So it could enjoy a strong rebound in the event of a correction.
Taylor Wimpey (LON:TW): This is one of the strongest-performing stocks in the FTSE 250 since 2009, and analysts have long argued that Taylor Wimpey is ripe for a fall. Shares have risen almost 500 per cent over the last five years, despite a slide of 7.5 per cent since 1 January.
Telford Homes (LON:TEF): this Aim-quoted business is considered by Russ Mould of AJ Bell to be ‘the purest play on London housing demand, from the builders’ side at least’. He points out that the shares have already suffered, falling 23 per cent over the 12 months to 10 June, despite a recent rally.
Among other housebuilders, the Bovis Homes Group (LON:BVS) share price has lost 6.3 per cent this year, while Bellway Homes (LON:BWY) is down 8.2 per cent. Galliford Try (LON:GFRD) shares have plummeted over 17 per cent year to date.
 Ibid, CNBC