Together with continuing political uncertainty for the country, Brexit brings with it the possibility of further unpredictability to the financial and housing markets. Slicing through all the rose-tinted rhetoric can be a challenge, but how will Brexit affect mortgages?
Brexit has arguably cast huge shadows of doubt across many areas of everyday life since June 2016. But while the referendum result gave the financial market a wobble in the immediate aftermath, it recovered and stabilised. However, as time has gone on, it’s become clear that such depths of Brexit uncertainty within the business world, has had a real term financial knock on effect.
With financial analysts confident the Bank of England (BoE) will issue the second interest rate rise within 12 months around May this year, probably up to 0.75%, there’s talk of another potential rise towards the end of 2018. So where does that leave homeowners and first-time buyers?
Historically, the UK public have been the benefactors of low interest rates set out by the BoE. Since March 2009, the base rate has always been comfortably under 1% - a far cry from the eye watering fluctuations of between 10% - 13% in the late 80s and early 90s. But to counter current market trends, the BoE issued its first increase in a decade, from 0.25% to 0.5% in November 2017.
Much like any other Brexit-related topic, no one can give any hard evidence one way or the other on how Brexit will affect mortgages. But one thing for sure is Brexit is having, and will continue to have, an effect on consumer spending habits, and that includes the mortgages of homeowners and first-time buyers.
In the UK, there are currently around 9.5m households with a mortgage. Of that figure, typically around half of these will be variable-rate mortgages. Those homeowners with this type of mortgage will potentially see an increase in their monthly payments as a direct result of our rising interest rates.
In real terms, it could mean householders with a £200,000 variable-rate mortgage could face an increase of around £300 a year. However, those on this type of mortgage are usually older people with a relatively small outstanding balance.
The other half of UK household mortgages are fixed-rate. Around 95% of all new mortgages are fixed-rate, with interest rates frozen for two or five years. So, the good news is that even though interest rates have risen, and will rise again, borrowers who are typically first-time, younger, buyers on a fixed-rate mortgage, will see no increase in their payments.
So, how will Brexit affect mortgages? With a clear lack of any official Brexit impact reports, it’s difficult to make any projections for the economy or its effects on household mortgages.
The economy is a carefully balanced beast at the best of times, so we could see a lot of volatility in the housing and mortgage market over the next few years. How everything pans out beyond our next interest hike and the imposed 2019 Brexit date is still very much uncertain.
So for now, there is no definitive answer, and there isn’t too much we can do, beyond some potential belt-tightening just in case.
