It’s been a few months since I last wrote about Brexit and its likely impact on interest rates, the mortgage sector and the residential property market. That was not long after the deadline for the UK to leave the EU was extended to the end of October.
So, now that we’re roughly halfway between the last deadline and this one, what’s changed?
On the one hand, nothing much has changed at all. There’s no more clarity now on how we’ll leave the bloc (or even, perhaps, if we’ll leave) than there was three months ago.
But politically-speaking, on the other hand, everything has changed. We have a new Prime Minister working with an even more slender majority than his predecessor and leading a party that, if anything, is more divided than it has been at any point since the EU referendum.
He chairs a cabinet that is loudly pro-Leave and, publicly at least, completely aligned to taking the UK out of Europe on October 31 come what may.
Outside the inner sanctum of the cabinet, former senior ministers warn of chaos ahead if Britain is allowed to crash out of Europe without a deal, while the apparatchiks of central and local government ramp up their preparations for No Deal.
Labour is said to be planning a vote of no confidence in a bid to force a General Election. The Liberal Democrats have a new leader in Jo Swinson, and her fiercely pro-Remain party is attracting membership applications from former Tory MPs, disillusioned with their brief stint as part of the Change UK party.
All in all, things have certainly been better within Great Britain PLC. But what does the uncertainty mean if you’ve got a mortgage or you’re thinking of buying and/or selling your home?
Naturally, it depends on what you read, who you listen to and whether you’re on the Winnie the Pooh or Eeyore side of the optimism/pessimism divide. But amid the more outlandish crystal ball-gazing, there have been some interesting and well-informed hypotheses doing the rounds recently.
The general consensus seems to be that a No Deal Brexit would substantially increase the chances of an economic downturn. Some commentators have stopped short of predicting a full-on recession, but others haven’t been quite as shy.
According to the Guardian’s personal finance and consumer correspondents, this may not be a bad thing for homeowners where interest rates are concerned. Their joint article talks of mortgage interest rates returning to their sub-1% levels of 2016 and even of the Bank of England imposing a zero rate to ease the transition to a new trade arrangement with the rest of the world.
Such a move would undoubtedly be welcomed by homeowners who suddenly find their mortgage rates significantly reduced. But the other side of that coin, of course, is the resulting misery for savers and investors.
As for house prices and whether now is the time to buy or sell, the same article suggests that trying to predict whether to move before or after October 31 is more likely to be a lottery.
Having said that, the fact remains that if you consider your finances to be insulated from the immediate impact of Brexit – whether with or without a deal – then when you move is less of an issue.
The only question at that point is whether you can sweeten the process by winning out on the price at which you agree to buy and securing the market value of the house you sell.
The Daily Mail’s financial website This Is Money reports that there’s been a growth in the appetite for long-term mortgage deals, including the recently-trending 10 year fixed product some lenders are offering.
As I said in our recent article on whether you should fix your mortgage rate, we’d advise caution when it comes to locking on to a long-term deal. They tend to be more expensive and if rates do come down – which is a distinct possibility over a period of a decade – then you’re going to lose out in the long run.
There are circumstances where a long-term fixed product might be right for you – but I would strongly advise getting advice from a professional mortgage expert before you commit.
And then there are the conflicting calls in the Express and Times for the Bank of England to either raise interest rates and demonstrate its commitment to – and confidence in – Brexit (Express), or cut rates ahead of Brexit to ease the impact on the economy (Times). So, even the papers are divided on the best approach to fiscal policy.
The fact is, we won’t have true clarity until October 31 arrives. In the meantime, the world keeps turning and life goes on.
My advice is always that you should take any long-term financial decision – such as buying a house – in the context of your long-term financial security, and ultimately that comes down to the answer to the question of whether your potential financial exposure is controllable.
Any investment is a risk – but calculated risks, where you’ve looked at the worst-case scenarios and demonstrated you can survive them, are always going to be preferable to walking into a commitment blind.
The best thing you can do if you’re thinking about moving in the next three months is get some advice from a professional broker and a financial adviser – and factor that advice into your decision.
Need more information about your mortgage options? Take a look at our short guide to remortgaging.
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by Oliver Whitehead - 19 August 2019