Brexit - Interest rates and Mortgage rates


The UK has voted to leave the European Union, in a landmark referendum result – and many have questions and worries over their personal finances following the outcome.

With this important decision, there is no doubt it will be a very different Britain. Regardless of how you voted, we need to work together to ensure it's for the better. There's a risk there will be financial pain to get there, but if so, the country has chosen it's a price worth paying.

Q. What's going to happen to interest rates? 

A. That's a difficult one to call, because there are at least two opposing pressures here.

Usually,  when the pound drops, you would increase the UK base rate. This makes people want to buy pounds with foreign currencies as they can get a better return, which strengthens the rate. This is especially important as a weak pound makes imports more expensive, which increases inflation.

Yet there are also worries about an economic downturn. There are two main possible risks that this could happen. Firstly because of sentiment change now, and later on because of changing trade relationships when we leave the EU.

To try to prevent it, you want economic stimulus, and that means cutting interest rates – as then it encourages people to spend rather than save. And while it seems with UK base rates stuck at 0.5% there's not much room to cut, some countries have even gone as far as negative interest rates.

Overall experts believe that interest rates will remain roughly similar to as they are now, or perhaps be cut a touch if things go wrong. But this is an ever-changing scenario.

 

Q. What will happen to mortgage rates? 

A. This is linked to the interest rate question above, but there are more elements to it than that. 

- Will fixes get cheaper? The rate at which fixes are set is based on complex 'long term City swap rates'. And the markets' Brexit gloom has pushed those down, so fixed rates might  trickle down further. This is balanced though by the fact that UK banks will want to keep strong capital reserves in such an uncertain time, which will discourage lending. 

- What about variable rates? 
That depends mostly on the UK base rate as explained above; best guess is limited movement for now. 

Overall, though, it's worth remembering mortgage rates are at historic lows already, with the cheapest two-year fix dropping under 1% for the first time .

If you can slash £1,000s off your costs (and that is not an exaggeration for many on standard variable rates), and get peace of mind that you can afford it , then do it. Yes there's a chance it could get even cheaper, but if you're securing a rate that's easily affordable, that certainty and safety has a value too. Playing the market is never guaranteed. 

 

Q. What's going to happen to house prices – is it worth me completing my purchase?

A. In most areas we worry about price rises, but for homes many celebrate it. And in some ways that's right – increased prices can lower your loan to value  which means a cheaper mortgage is possible.Yet for others, rising house prices stop them ever owning a property.

As for what'll happen due to Brexit, that's anyone's guess. It's possible there will be market uncertainty, and certainly initial reports show a few people pulling out of deals, which will lower demand and could impact prices – yet that could just be initial shock and within a few weeks it may settle down.

However, we still have an issue with undersupply in many parts of the country, which is a powerful factor in keeping prices at current high levels.

A number of people have been asking if they should complete on the house they're in the process of buying. If it's the house that's right for you, it's within your budget and you've a decent mortgage that you can afford, and you decide its the best decision for you then go for it. 

We will be following developments over the coming weeks and months and are always here to answer your queries or concerns.

Please also visit the following social media pages regularly throughout the next few weeks to see our thoughts as events unfold.

  /blog.aspx 

  https://twitter.com/best_financial

  https://www.facebook.com/bestfinancialplanningltd/

  https://plus.google.com/+BestFinancialPlanningGarsington/posts

Powered by: IRESS