How Brexit Will Affect Your Mortgage

Posted 3 December 2018 by Nick Parkhouse

Will Brexit mean higher interest rates? Will house prices fall? Here’s your guide to how Brexit will affect your mortgage...

The uncertainty surrounding the UK’s withdrawal from the European Union is having an impact on a wide range of industry sectors from food to travel.

One major concern you may have is what Brexit means for you and your money. So, we’ve looked at the latest predictions and put together a guide to how Brexit will affect both house prices and your mortgage. Keep reading to find out more.

Existing mortgage holders likely to see little change

If you have a mortgage on your home in the UK, the chances are that you will be with a lender who is based in the UK.

Even if the UK leaves the EU without a deal, you shouldn’t see a change to your existing mortgage, unless you’re on a tracker or variable rate in which case you may see changes to your repayments if interest rates rise or fall (see below).

Some experts believe interest rates will stay the same or fall

If you’re looking for a new mortgage after Brexit, then experts are divided about whether you can expect to pay higher interest rates.

One train of thought is that, as the property market is currently sluggish, lenders have plenty of money to lend and are therefore still offering cheap deals.

The average five-year fixed-rate mortgage at 60% loan-to-value (LTV) is currently 2.31 per cent; almost exactly the same as it was this time last year. The average two-year fixed-rate deal is 1.9%, compared with 1.75% in November last year.

Industry commentator Ray Boulger doesn’t think there will be any interest rate rise in 2019 and that the Bank of England Base rate will remain at 0.75% for the whole of next year.

Some experts believe that a ‘no-deal’ Brexit could actually see interest rates fall. Mortgage adviser Jonathan Harris says: “It is possible that the next move in interest rates will be downwards as the Bank of England tries to stimulate the economy.”

Industry insider David Hollingworth agrees. He says: “The current trajectory for interest rates has been upward and the Bank of England has been clear that rates could gradually ease up.

“However, although a disorderly Brexit wouldn’t necessarily change that path it may well see additional support to the economy being required and rates could come back down,” he adds.

Brexit could push up the cost of borrowing

While some experts believe Brexit could see the cost of mortgages remaining stable or even falling, others believe that interest rates will rise once the UK leaves the European Union.

Changes to trade rules could mean that banks and building societies will have reduced access to global money markets, and therefore the cash they need to lend. Firms may not be able to trade in certain derivatives meaning that, according to a government paper, “this would reduce market liquidity in the UK and EU.”

Lower market liquidity means that lenders find it harder to access the money they need to fund mortgages. This means the cost of borrowing will rise, pushing up interest rates.

Grainne Gilmore from one of the UK’s leading estate agency chains believes that Brexit will lead to higher interest rates. She says: “There is every chance that they will rise. Any rate rises are likely to be moderate and well signposted, with the Office for Budget Responsibility forecasting that interest rates will be at 1.5% in 2023.”

Peter Izard from Investec Private Bank predicts that there will be two 0.25% interest rate rises in the coming year while the Association of Mortgage Intermediaries (AMI) has also said that a no-deal Brexit would cause mortgage rates to rise.

Mark Carney, the Governor of the Bank of England, has also warned that interest rates could rise in the event of a no-deal Brexit. The cost of borrowing could increase to curb inflation and this would push up mortgage costs. In addition, rising unemployment — which could make mortgage lending riskier — might also cause lenders to increase rates.

Lawrence Bowles from property company Savills advises applying for a mortgage now. “With the greater risk of a no-deal Brexit and a possible general election, lenders’ appetites will be smaller. We would expect to see fewer loans at high loan-to-values.”

House prices set to remain sluggish until 2023

As well as the possibility that the cost of mortgages will rise after Brexit, many experts are also predicting a fall in house prices over the next few years.

Much could depend on the outcome of the Brexit negotiations. Mark Hayward, chief executive of NAEA Propertymark says: “Brexit is undoubtedly causing uncertainty in the housing market, which in turn affects sentiment and decision-making.

“With details of the final deal still unknown, we’re seeing both buyers and sellers putting their plans on hold. Once the details are clearer, we’ll have a degree of certainty which may trigger a flurry of activity,” he adds.

Estate agency Savills has forecasted that that house prices in London will fall by 2% in 2019 and remain sluggish until at least 2023 while Mark Carney has also warned that a no-deal Brexit could negatively affect the property market.

According to the Bank of England chief, a ‘disorderly’ Brexit could lead to increased unemployment and prices, and higher interest rates. He says that in a worst-case scenario house prices could fall by as much as 25% - 30%.

Difficult to predict how Brexit will affect your mortgage

With so much uncertainty surrounding the UK’s withdrawal from the EU, it’s perhaps no surprise that predictions vary wildly regarding what might happen to interest rates and property prices.

David Blake from consumer organisation Which? sums up the current situation: “Let’s face it: Brexit is a complete unknown, and while a professional mortgage adviser won’t have all the answers, they will be able to explain your mortgage options to help you navigate this period of uncertainty.”


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