What will happen to mortgage rates after Brexit?
THE UK is leaving the EU this Friday and entering a transition period, which will impact homeowners in Britain.
Boris Johnson’s Brexit bill passed through Parliament last week, paving the way for the country’s exit from the European Union. How could things change after January 31.
This will see the UK remaining in the EU and bound to follow its rules despite not having representation in the EU’s institutions.
The transition period ends on December 31, 2020, and is designed to smooth the UK’s exit from the EU and give the Government time to negotiate trade deals and the terms of the UK’s future relationship with the bloc.
After Britain’s exit from the EU, trade talks with the bloc are expected to start almost immediately.
An EU summit is scheduled next month to kickstart the future relationship negotiations.
Chancellor Sajid Javid will unveil a budget in March that sets out the Government’s spending plans post-Brexit.
Until the UK’s trade deal with the EU is detailed, we won’t know the precise impact on the housing market and homeowners.
How closely the UK remains to EU regulations or its distance from them will affect mortgage rates. Interest rates will have the biggest effect on people’s mortgage rates. How the economy reacts to the UK’s exit from the EU would cause interest rates to either go up or down.
If the economy is slowing down, the Government could choose to step in and lower the interest rates to help boost growth or it could raise the rate should inflation becomes a problem. If interest rates go up, it’s likely mortgage rates will also go up, which would affect people not on fixed-rate deals. Those people will see their mortgage rate stay the same until it runs out. For those on a variable rate mortgage, repayments will go up in line with the increase to interest rates.
If interest rates drop then it’s good news for people on a variable rate or who want to re-mortgage, while those on a fixed-rate deal will not benefit from the change.
With uncertainty around Brexit now over, the housing market could see the upward trend seen since the Conservatives’ election win continue. Buyers and sellers who had been delaying a decision until certainty returned could now be prepared to make them. Mortgage providers would be competing to give consumers the best rates. With low mortgages rate potentially continuing, it would be a good time for those borrowing.
Post-Brexit, changes could be made that see the country stop adhering to the EU’s Mortgage Credit Directive (MCD), which was introduced in 2016, and is European legislation that created a framework of conduct standards for those selling residential mortgages. The directive has been blamed for creating “mortgage prisoner” – people who have been locked into mortgage terms and whose circumstances later change, leaving them trapped with the initial terms. This leaves them paying more and trapped with their provider as they can’t pass an affordability test with other banks.
After Brexit, the MCD legislation could be changed by the Government.