House prices could take an 18% hit over the next two years and there will be an “economic shock” that will increase the cost of mortgages if the UK votes to leave the EU, George Osborne has warned.
The chancellor said he would publish an official analysis next week saying house prices would be lower by at least 10% and up to 18% compared with what is expected if Britain remains in the EU. He made his claim as it emerged that property investors were inserting “Brexit clauses” in commercial deals to allow them to pull out.
Speaking at the G7 summit in Japan, Osborne said: “If we leave the European Union, there will be an immediate economic shock that will hit financial markets. People will not know what the future looks like.
“In the long term, the country and the people in the country are going to be poorer. That affects the value of people’s homes and the Treasury analysis shows that there would be a hit to the value of people’s homes by at least 10% and up to 18%.”
It is the latest in a series of warnings from Downing Street forecasting dire consequences if voters decide to leave the EU. Osborne has already claimed that households would be £4,300 a year worse off and millions of jobs would be at risk, while David Cameron argued last week that Brexit could jeopardise peace in Europe.
The prime minister and chancellor have been accused of scaremongering and negativity by Vote Leave, the official out campaign, but Downing Street argues that voters need to be presented with the government’s view on the consequences of Brexit.
Andrea Leadsom, a Conservative minister campaigning for Brexit, who used to work in the Treasury with Osborne, said it was a “an extraordinary claim and I’m amazed that Treasury civil servants would be prepared to make it”.
She added: “The truth is that the greatest threat to the economy is the perilous state of the euro; staying in the EU means locking ourselves to a currency zone, which Mervyn King, the ex-governor of the Bank of England, has rightly warned ‘could explode’. The safer option in this referendum is to take back control of the vast sums we send to Brussels every day and vote leave on 23 June.”
In a sign of property market jitters, City lawyers said investors in commercial property were adding Brexit clauses to contracts allowing them to pull out of purchases.
Law firm Nabarro said buyers were putting down deposits that would be refundable if the UK voted to leave. The firm’s senior partner, Ciaran Carvalho, said: “We have seen a marked increase in the number of contracts which include clauses to protect the position of buyers investing in UK real estate ahead of the European Union referendum,” he said. “Brexit is a leap into the unknown. Brexit clauses are a pragmatic, legal response to that uncertainty.”
Earlier this week, the developer behind new luxury flats in London said it would give buyers the chance to pull out of purchases if they did not like the outcome of the vote.
Peter Wetherall, an estate agent who covers the Mayfair market, said sellers were telling nervous buyers “stay calm but carry on and, if you do not like the result, then we will rescind the contract”. He said this was enabling deals to progress in the weeks running up to the vote.
Critics of the new Treasury analysis are likely to point out that the fall in prices is only compared with where they would have been if there was no vote for Brexit. The Office for Budget Responsibility predicts a rise of 9.4% over the next two years, meaning the government forecast suggests homes would be worth between 0.6% and 8.6% less in cash terms than they are now.
Moody’s, the credit rating agency, has highlighted the possible benefits of the UK leaving the EU for first-time buyers, as there would be “lower competition for housing, as house price and rental inflation would slow down if immigration is curbed”.
However, Osborne dismissed that argument, saying first-time buyers would be “hit because mortgage rates go up and mortgages become more difficult to get”. It would be a “lose-lose situation” for anyone who owned or wanted to buy a home, the chancellor said.
On top of his house price warning, Osborne used his attendance at the G7 to claim that other European finance ministers were adamant that the UK would have to accept free movement of people and pay into the EU budget if it wanted access to the single market.
The chancellor said the first two years after a Brexit vote would be a “long, costly and messy divorce”, as the UK would be forced to negotiate an exit deal with 27 other countries and new trade deals with more than 50 non-EU countries.
Earlier, Jean-Claude Juncker, the president of the European commission, made it clear that Britain would not get a friendly reception from other EU countries, ominously telling French newspaper Le Monde that “deserters will not be welcomed with open arms”.
“If the British say no – which I hope they will not – community life will not carry on as before. The United Kingdom will have to accept being considered as a third party, which does not have its hair stroked in the right direction,” he said.
However, Nigel Farage, the Ukip leader and out campaigner, said the warnings of Juncker and others were a sign those campaigning for the UK to stay in were moving from “project fear to project threat”.
Vote Leave tried to move the argument on to immigration by releasing a video warning that the prime minister could not be trusted to stop Turkey joining the EU. Michael Gove, the justice secretary, gave a speech arguing that the NHS would be put at risk by the immigration of an extra five million EU citizens, equal to adding the entire population of Scotland by 2030 if the UK voted to stay in.
In response, a senior source in the remain campaign claimed Vote Leave was “releasing video nasties about Turkish people” because their economic case for leaving the EU had failed.
Although the remain camp feel they are convincing voters about the financial case, they are still worried that their voters will be less likely to turn out than those of the leave camp.
Gordon Brown, the Labour former prime minister, is to urge Labour voters on Saturday to turn out to vote to stay in the EU for positive reasons that it supports jobs and growth.
“My message to mothers, worried about their children’s future, is that the biggest job creator of the next decade will be Europe’s single market,” he will say.
“My message to those who feel globalisation is like an out-of-control runaway train is that only through cooperation – starting with the European Union – can we manage global change in an interdependent world in the public interest.”
As the 23 June vote draws closer, Downing Street intends to point to a growing range of independent bodies who are on their side, such as the Bank of England, OECD and International Monetary Fund, as well as business chiefs and world leaders.
Justin Trudeau, the prime minister of Canada, became the latest to warn that Britain would be better off in the EU as striking trade deals from outside was not “easy or automatic”.
Boris Johnson, the former London mayor and prominent leave campaigner, had held up Canada as example of a country that had recently struck a trade deal with the US.