The UK left the EU on 31st January 2020. However, the UK remains in a transitional relationship with the EU until 31 December 2020.
Until then the UK remains in a trading relationship with the EU and will follow EU rules.
Negotiations as to how the UK will continue its relationship with the EU after Brexit are on-going.
Brexit refers to the UK leaving the EU. More than 17m people voted to leave in a referendum in June 2016.
The long-term implications of the UK leaving the EU, an economic and political union of 27 countries, are the subject of ongoing speculation.
It is not yet clear what the long-term impact of Brexit will be on interest rates, and therefore products such as mortgages – which are priced using interest rates.
Interest rates are used to help control the UK’s money supply. The only way Brexit would impact on interest rates would be if Brexit caused the UK economy to slow down or inflation to increase; rising inflation is normally a sign of a growing economy.
The UK’s interest rates are set by the Monetary Policy Committee (MPC) of the Bank of England (BoE). This sets the Bank of England base rate, which is the interest rate at which banks borrow from the BoE. This turn affects the interest rate banks charge borrowers, also known as an annual percentage rate or APR.
If the economy’s slowing down, the MPC might reduce interest rates to help encourage growth
On the other hand, the MPC might decide to raise interest rates if inflation becomes a problem
If you are on a variable rate mortgage and you’re worried about rates rising after Brexit you may want to consider switching your mortgage to a fixed rate deal.
If you’re already on a fixed rate mortgage, you may be considering what to do when your deal comes to an end.
You will need to:
Consider any exit fees you might be charged by your lender if you move your mortgage before the end of your current mortgage deal
If your mortgage repayments increase you need to work out if you can afford them, using a mortgage repayment calculator
Banks are not obliged to follow the Bank of England’s interest rate decision, but they are likely to pass on a rise because it impacts on the rate they are able to borrow.
If you switched to a fixed rate deal just before interest rates fall you will not benefit from a fall in interest rates
If your fixed rate deal is coming to an end you may be able to remortgage to a cheaper rate
If you are on a variable rate your mortgage repayments are likely to fall
If you are on a fixed rate deal your monthly repayments will not rise
If you are on a variable interest rate it is likely your repayments will go up, how much will be decided by your lender,
Two months after the Brexit vote, in August 2016, the Bank of England cut the interest rate to a record low of 0.25%
There have been two increases since, so by March 2020 the base rate was 0.75%. In March 2020 the BoE cut the base. This means the interest rate is now 0.1%.
This emergency move was an attempt to cushion the UK economy from the coronavirus outbreak. Borrowing is now at a record low.
Since June 2016 mortgage rates have fallen, making it cheaper to borrow:
There is no reason why you should not take out a mortgage before Brexit but you may want to consider how you will repay your mortgage.
People with fixed rate mortgages are likely to be affected once they reach the end of their current deal.
An interest rate rise could make remortgaging more expensive
If you are worried that rates will go up, there are things you can do to protect your finances and keep your mortgage affordable.
Any changes in interest rates after Brexit are unlikely to be drastic, as the MPC tends to increase rates gradually.
But bear in mind while 0.25% in one month might not seem much, over several consecutive months it could add up.
The Money Advice Service has calculated how much more you’d have to pay on a £200,000 mortgage.
You might want to use a calculator to check how a rise in mortgage interest rates would affect your family finances
Impact of interest rate rises on a £200,000 mortgage – currently paying 2.5% interest
Not everyone knows what type of mortgage they are on. You may need to check with your mortgage provider to find out. If you are on a fixed rate mortgage and coming to the end of your deal you may want to compare mortgages to see if you could save anything by switching.
If you plan for an increase in interest rates it may be worth making a family budget and looking at ways you can save on other household expenses.
Other things you may want to consider:
Building up some savings – shop around for savings rates
Improving your credit score – paying off or restructuring debts like loans or credit cards
Seeking debt advice – you don’t have to be having problems to get advice
The interest rate on a credit card or overdraft could rise if rates go up, so if you can get these types of debts down it will free up money if you do find your mortgage repayments increase.
Make sure you are on the best deal possible. If you are in a fixed rate mortgage and nearing the end of your deal it may be you have to pay a fee to switch, but the savings you make over the term of your mortgage could be worth it.
If you can afford it, take advantage of the low rate and overpay your mortgage. There are limits on how much you can overpay, and you might also be charged.
Find out how to make a mortgage overpayment.
No one can predict exactly what will happen to rates after Brexit.
In June 2016, when the EU referendum was held, the average UK house price was £212,887.
According to the Office for National Statistics (ONS) this meant house prices rose 8.2% compared to the same month a year before.
House prices are still rising:
The average house price in the UK was £231,855 in March 2020
That represents an increase of 2.09% compared to March 2019
House prices increases in March 2020, compared to a year before:
England - £248,271 - a rise of 2.18%
Wales - £161,684 - a rise of 1.11%
Scotland - £151,856 - a rise of 2.16%
Northern Ireland - £140,580 - a rise of 3.80%
The prospect of a Brexit with no deal could cause a drop in house prices. Predictions of how big this fall could be varies:
The Centre for Economics and Business Research predicted a fall of 13%
The Lloyds Banking Group believes they will drop 30.2% within 3 years of Brexit
The impact of the Covid-19 pandemic is also making itself felt on house prices. But this could be good news for borrowers.
The Bank of England is predicting that the coronavirus crisis will push the UK economy into its deepest ever recession. But this also means lenders are now offering mortgages deals.
According to HMRC, 1,328,510 residential properties changed hands in the 12 months before June 2016. Transactions totalled 46,230 in May 2020, compared to 97,050 in May 2019, but they are still 25% higher than April 2020, which saw 37,000 transactions.
House prices hit a record high in August 2020, largely because for three months house-buying was restricted because of the Covid-19 global lockdown.
House prices rose 2% in August according to Nationwide to £224,123.
The rise was caused by the stamp duty holiday announced in early July, combined with a surge of properties being put on the market post-lockdown.
The number of people looking to buy a house has risen since both the Brexit referendum and Covid-19.
There were on average 330 people per estate agency branch looking to buy a new home in June 2016 *
This rose to 344 in May 2020 *
(*according to NAEA Propertymark)
The fall in interest rates, combined with a better choice of rates as mortgage lenders attempt to shore up business during the pandemic means many borrowers are actively switching mortgages.
If you want peace of mind because of current economic uncertainty then a fixed rate can offer that.
Having a fixed rate makes it easier to budget if you are facing job uncertainty
You can budget for a set monthly repayment
You can also budget and consider putting money into savings
The Financial Conduct Authority (FCA) confirmed that homeowners whose finances have been affected by COVID-19 can apply for a 3-month mortgage payment holiday, which can be ‘topped up’ to a total of 6 months.
Homeowners unable to make their mortgage payments who have yet to apply for a payment holiday have until 31 March 2021 to do so. Mortgage payment holidays ease the burden of having to make monthly payments at times when you may be struggling to make ends meet. The holiday will not appear on your credit file and won’t affect your credit score, however lenders will still be able to find out about it.
You should only take a mortgage payment holiday if you really need to. This is not free money – it is simply extending the term of your mortgage by 3-6 months. Your home loan will continue to build up interest during this time, meaning the total amount you will pay back over the term of your mortgage will be higher.