With Theresa May having emerged from her Brussels trip with unanimous backing for her plan for Britain’s exit from the European Union (brexit) and prepares for tomorrow’s Parliamentary vote on it (assuming continued Cabinet concerns about the likelihood of a Commons defeat don’t mean it’s postponed), one of the big questions which has yet to be answered is what the future holds for interest rates and, more specifically, the mortgage market.
There’s much speculation about the many and varied potential economic consequences of Britain’s departure from the union – from the thorny issue of what happens with the Irish border to inward investment from overseas and the effect a future without a European trade agreement might have on our supermarket shelves.
But arguably the biggest concern for individuals and business alike has been the potential effect on interest rates and the housing market.
According to the Office for National Statistics, the housing market is now growing at its lowest rate for five years and in September the Governor of the Bank of England, Mark Carney, warned that a no-deal exit from Europe might force a rise in interest rates.
So with the Prime Minister now looking for Parliament to sign up to a deal viewed as acceptable to remaining members of the EU, but which has received a lukewarm reception from pro-Leave MPs in her own party, what is the likely effect of Brexit on the mortgage market.
The honest truth, of course, is that no-one really knows, and the level of largely speculative white noise around the subject since June 2016 when the UK voted to leave has been unhelpful at best.
The variables are many and varied – interest rates in a no-deal withdrawal, for example, may look very different than they would in a Norway- or Canada-style European Free Trade Agreement. And until Parliament meets to debate the proposed agreement, none of us really have any idea what might be in store in that regard.
So if we don’t know the answer to the specific question about what interest rates might do in our new post-March 2019 world, what do we know right now about the housing market?
The first absolute is that interest rates will affect most homeowners regardless of our European status. This is simple fact. If you currently have a mortgage and you expect to have a mortgage at the time we leave, then whatever happens to interest rates will affect you whether you do nothing, move house, extend your borrowing or remortgage.
We also know that the reasons for moving will remain unchanged. People move home – and, therefore, move mortgage – for all sorts of reasons: downsizing, upsizing, a change in job circumstances and/or location, family commitments and health reasons can all play a part. So, the motivation to move will be no different.
It’s also probably fair to assume that the mortgage market will continue to be competitive.
That doesn’t mean rates won’t go up, but such is the competition for business within the mortgage sector that it’s reasonable to guess that whatever context they have to work within – whether that’s against a landscape of increased rates or not – lenders will be doing whatever they can to offer the most attractive rates possible.
In short, lenders’ profitability will depend on continuing to generate new business.
We can probably also have confidence that the Bank of England will be doing its utmost to take a measured approach to how it responds to changing economic factors. The Bank regularly stress tests lenders’ ability to cope with changing demands and any rise in interest rates is likely to be agreed only where there is a longer term advantage to be gained in protecting the UK’s overall economic health.
Whilst you can never say never, a return to the knee-jerk policies on interest rates we saw towards the end of the 1980s and which led to explosive rises in base rates overnight seem highly unlikely in the context of what the financial sector has learned in the decade since the economic crash of 2008.
The question for most people is likely to be about whether it makes sense to extend their borrowing, either through an additional loan from an existing lender or a new mortgage from a new lender, until the picture becomes clearer.
That will be a greater consideration for you depending on affordability – and that’s where the FCA and Bank of England rules on lending should help anyway, weeding out those applications which fail tougher lending criteria.
If you’re considering a change in your mortgage for whatever reason, our advisers can help you to assess your personal situation and finances and advise you on the best course of action according to your circumstances.
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.