What Impact Could Brexit Have on Mortgages?
If you have been following the latest Brexit developments (and who can avoid them?), you might be wondering whether to put off a mortgage or re-mortgage application until we know the outcome....
Reports of a possible recession, in the event of a disorderly exit, are hardly likely to fill you with confidence, but is it really wise to sit on your hands waiting indefinitely?
It is natural to be concerned about job security and mortgage affordability in the face of unprecedented political events, so it is little surprise the housing market ended last year on a subdued note. Nevertheless, the vast majority of people are not putting it off any longer. They are getting on with their lives, choosing to buy a home based on their current personal circumstances, or because they are relocating or downsizing.
There were certainly signs of both lender and consumer confidence during 2018, but nobody yet knows whether Brexit will slow this upward trend; one possible outcome is that people will continue to borrow at a similar level albeit with more safeguards in place, such as unemployment protection cover.
Applying for a mortgage is never a decision to be taken lightly, though buyers currently have a number of factors working in their favour. Interest rates remain extremely low, compared to a generation ago when they didn’t drop below 5%. Go back even further to the 1980s, and householders regularly had to contend with rates of 14 or even 15%. Today’s mortgage rates are a fraction of the cost and aren’t likely to dramatically rise.
Innovation and competition in the mortgage market have also put today’s borrowers in a strong position. Being a contract worker, or even having blips in your credit history, are no longer barriers for securing a mortgage, as more lenders tailor their products to more complex financial circumstances. With 100% mortgages making a cautious return, including Lloyds’ recently-launched ‘Lend a Hand’ deal, first-time buyers no longer even have to save for a deposit, as long as they have backing from their family.
If this sounds risky in an uncertain climate, then we should remember that lenders typically perform what are known as ‘stress tests’ to calculate that applicants can afford the repayments, in the event that interest rates rise, on virtually all mortgages.
It is worth underlining too that the outcome of Brexit is unlikely to adversely impact the supply of mortgages, since the majority of lenders are UK-based. Global banks like HSBC and Santander have ring-fenced UK operations, so buyers are not exposed to European markets and pricing.
When it comes to remortgaging, most home owners are already aware that doing nothing is rarely advisable. As high numbers of two-year fixed rate deals come to an end this year, they need to act fast to avoid rolling onto their lender’s Standard Variable Rate (SVR), which could be close to 5%. This would clearly be a significant hike from a fixed rate of, for example, 1.49%*, and one that could put pressure on household budgets particularly if interest rates go up again.
There is no reason why people can’t get on, or move up, the property ladder this year – as long as regulation doesn’t hamper mortgage innovation and consumer confidence doesn’t wane. Alongside the attractive deals currently available, the government has confirmed that Help to Buy, a broadly successful and pragmatic initiative, is set to continue until 2023.
Whether or not the housing market falters in the immediate aftermath of Brexit remains to be seen but the experts are predicting that typical consumers will continue to get on with their life and buy or move home to suit your personal circumstances.
*Lowest priced 2 year fixed rate at 75% loan to value ratio, sourced from Mortgage Brain 22 February 2019
All information correct at the time of writing