‘Brexit’ Mortgage Rates – Ask the Experts
6 minute read
With the ‘Brexit’ debate reaching a near fever pitch ahead of tomorrow’s referendum, the recurring question of what economic impact a leave vote might have is one which hangs particularly heavy over the housing market. With predictions that house prices will plummet and mortgage rates soar, we’ve been fielding questions as to where we think the market will go for weeks now. As the referendum is nearly upon us, we’ve asked for expert opinions from some seasoned financial commentators and economists, to shine a more rational light on the argument and attempt to establish a consensus.
Henry Pryor – henrypryor.com
In the event of a ‘Leave’ vote, clearly there will be considerable uncertainty, something markets dislike, and this could lead to a rise in interest rates in itself. More likely, I suspect the Bank of England will use this as an excuse to put up rates, perhaps by as much as 1.5% by Christmas. In reality, interest rates are likely to remain where they are. Clearly Sterling would be expected to fall in value against other currencies, but this in itself is unlikely to affect interest rates. A Brexit result is expected to dent the wider economy, which may necessitate a rate rise, but how quickly the economy would splutter is just one more imponderable – but it’s to be expected. “If the ‘Remain’ argument triumphs then I would expect interest rates to remain where they are, although a rise in base rates could be necessary in Q1 of 2017.” Tweet This
Shaun Richards – notayesmanseconomics.com
The best way to understand what will likely happen to interest rates following a recession is to recognise the direction of rates at present. A continued global depression in investment yields has led to a wash of money flooding the market, as investors look for any option (no matter how bizarre) to drive some kind of yield – in turn, making mortgages even cheaper. This global trend is strong and has been taking place for some time – see my previous comments on negative interest rates). “The chance of the Brexit referendum – regardless of outcome – proving to be a large factor in an interest rate hike is slim.” Tweet This To witness a rate hike anything like what’s been predicted by some ‘experts’ would be something really extraordinary and a reversal of the continuing global trend. Unless we see a large shake-up in the government after the result comes in (i.e. a leadership battle and cabinet re-shuffle), there’s unlikely to be any substantial change, and the change we do see will likely be short-term. “However, the politics that Brexit is wrapped up in could mean the predictions made become self-fulfilling.” Tweet This The more we’re told disaster is on its way, the more likely it is that we’ll see turbulence. However, this is not nearly on the scale of a plummet in oil prices, or the annexation of Crimea, which really has significant global influence. Ultimately, it’s irresponsible for chancellor George Osborne to make the claims he has, while essentially pulling numbers out of thin air. More preferable in situations like this is to stay nothing if you’re unsure.
Robyn Hall – Mortgage Introducer
“Much has been said over the past weeks and months with regards to the EU referendum, but the level of insidious lies from both sides has now reached epic proportions.” Tweet This Our favourite is the claim that a Brexit vote will lead to house prices taking an 18% hit over the next two years, along with an ‘economic shock’ that will increase the average cost of a mortgage by £1,500. Quite how they reached such a specific number is anyone’s guess. And this from our once respected chancellor George Osborne! So that means: – A vote to ‘Leave’ would add between 0.7% and 1.1% to mortgage interest rates; – Adding between £920 and £1,470 a year to a mortgage costing £292,000 – a monthly increase of between £75 and £120; – And first-time buyers, who paid on average £220,000 for their first home, would see their annual mortgage costs rise between £810 and £1,280 – the equivalent of between £70 and £105 a month. Or so the theory goes. “The truth is that neither side knows the consequences of either outcome.”
Sam Barker – Mortgage Strategy
“If either side of the Brexit argument was truly convincing then we wouldn’t have such a frenetic level of debate and the country wouldn’t be split 50/50 on the issue.” Tweet This There are a lot of interesting theories on Brexit. Many appear logical, but many are contradictory. The truth is no-one really knows what will happen if we vote to leave. Therefore, the Mortgage Strategy team are maintaining a neutral standpoint on what it might mean for the UK and our property market.
Carl Shave – Just Mortgage Brokers
The impact of a potential Brexit is undoubtedly one of the most significant political and financial matters of our generation. With our economy in a state of relative uncertainty, the unknown consequences of leaving the EU could certainly have an impact on interest rates, but to what extent? Uncertainty is not something the markets tend to look favourably upon and this in itself could result in rates rising slightly – in the short term at least. However, I would envisage this to quickly calm down. “Until actual results materialise, I wouldn’t expect what is now a fairly steady ship to be made particularly unstable. Therefore, I believe interest rates will remain relatively low.” With regard to the base rate, although Mark Carney has made his thoughts quite clear on the matter, I can’t see the Bank of England making any knee-jerk reactions. So again, I expect the base rate to stay where it is, at least in the short term. With so many views and opinions, with some bordering on complete scare-mongering, the fence is a safe place to sit, although it’s likely to become increasingly uncomfortable!
What do you think?
You’ve heard what our experts have to say, now we’d love to hear your thoughts. Do you think warnings of a mortgage price hike post-Brexit is a load of hot air or is it likely to influence your decision? Image source 1 & source 2