What impact has Brexit had on the UK mortgage market
The impact of Brexit on the mortgage market
It might seem as if Brexit – and, more specifically, speculation regarding Brexit – has rather taken over life as we know it. The economy, domestic political issues, the stock markets, inflation, house prices, property, the retail sector – all are now being viewed through the Brexit prism, all judged in relation to Brexit and its potential consequences.
And the mortgage market is no different. Contractor Financials, a specialist mortgage brokerage, has set about analysing the impact Britain’s vote to leave the EU has had on the mortgage market, running a vast and thorough information-gathering campaign to achieve this goal.
Although house prices have been rising steadily for a number of years – and rose by a further 5% in 2016 – there were some who feared that the vote for Brexit could have a detrimental effect on the property market. Some of the more gloomy forecasts suggested that house prices could fall off a cliff. This, of course, didn’t come to pass, with the property world remaining robust and resilient in the face of the shock result.
The research, though, takes a look at a number of different angles and scenarios to provide insight and reassurance for those worried about the impact of Brexit on the world of mortgages and the wider housing market as a whole. In order to do this, it borrowed on predictions from industry professionals and experts who work within the financial world on a day-to-day basis, from mortgage lenders to independent financial advisers.
The key finding from the survey shows that most industry experts expect the mortgage market to continue to grow in the year ahead. Some 57% of those surveyed predict growth of 1-5% in the next 12 months, despite the uncertainty surrounding Brexit, Article 50 and Britain’s negotiating strategy.
In fact, the things most likely to affect growth are external factors such as job uncertainty and consumer confidence. Of course, there is a strong argument that Brexit could have an impact on these external factors themselves, but the research suggests that Brexit uncertainty itself won’t be an issue.
The survey also found that 60% of lenders believe now is the best time in a long while for borrowers to take out a long-term fixed-rate mortgage, preferably five years in length. One of the unforeseen outcomes of last June’s vote was the cut in the Bank of England’s base rate, from 0.5% to 0.25%, for the first time in seven years. It had remained at (then historic) lows of 0.5% in the aftermath of the global financial crisis to help protect the economy. After Brexit, the decision was taken to cut interest rates further to stimulate growth and protect house prices.
Low interest rates represent good news for mortgage borrowers, particularly those on mortgages which track the Bank of England’s base rate. Mortgage rates have been very low of late, with many viewing current rates as the best a borrower is ever likely to get. For those that can cobble together the necessary deposit, monthly mortgage repayments are - in many cases, especially in London – cheaper than rent.
Post-Brexit, borrowers also had a greater range of mortgage products to pick from, with some 5,336 deals on the market at the end of September, compared to 4,736 in June.
What’s more, in the three months after Britain voted to leave the EU the cost of borrowing dropped, down from a rate of 2.99% in June to 2.85% in September.
Although the aftermath of June’s vote has undeniably caused political and economic uncertainty – with effectively a whole new team running the country, the pound crashing to a 31-year low, rising inflation and business uncertainty – the property market has largely weathered the storm unscathed. There was a slowdown before and after the vote – as people took a wait and see approach – but since then the recovery has been solid and some of the more doom-laden predictions have failed to materialise.
Of course, we haven’t actually left the EU yet, but when Article 50 is invoked (and there is still some debate about when exactly this will be) and the official process begins, there is little to suggest that the property market will be impacted adversely.
In fact, as the above research shows, there may be benefits – since June 23, the mortgage market has grown in strength and house price growth has remained robust, what’s to say Article 50 being triggered won’t have a similar effect? There is understandable nervousness about a potential rise in interest rates, and what exactly the fallout from our withdrawal from the EU will be, but this will only become clearer in the months and years ahead.
For now, we can only hope that the property and mortgage markets continue to show the same resilience that they have shown since June. All the forecasts point to that being the case, which is helping to keep industry optimism high.