MoneyMagpie

Sep 24

Brexit, how will a ‘no deal’ affect your home and your mortgage?

Brexit is supposed to happen on March 29th 2019. If we negotiate a deal with the EU then we’ll have a ‘grace period’ of 21 months (up to 31st December 2020) to sort things out. In that time we will carry on as before. However, if no deal is struck then we will ‘fall off a cliff’ on 29th March 2019 and the rules, benefits, tariffs and taxes we had under the EU will be up for grabs.

Here we are looking at what could happen after 29th March 2019 if we don’t cut a deal.

 

house price crash

London street

House prices in London have slowly sunk since the Referendum result in 2016. It’s likely that, if no deal is struck, prices in the capital and elsewhere in the country will continue to sink.

Currently the average estate agency has 39 properties on it’s books, around 300 possibly buyers and actually sells nine properties per month. This is not good business for estate agencies. If this situation continues to worsen, some agencies could go under before March 29th. Others might fall after that date if there’s no deal.

The reason for the slump is uncertainty.

Buying a property is a very big outlay and, for most people, involves a significant mortgage – i.e. a whopping great loan. Few people want to risk their money and take on a huge loan that they potentially won’t be able to pay off. Because things are so uncertain, a lot of people are not sure if they will have a job or a business after a hard Brexit, so they are being cautious about what they invest in.

At the same time, people who would otherwise be selling their property are putting it off as they can see that they won’t get the sort of money they want right now. Many are hoping for a good deal or maybe another Referendum where the country decides not to leave so that the price of their home will go up.

You would think this would all be good for first-time buyers, and to some extent it is. Prices are definitely coming down – though not everywhere. Recently prices in Scotland and Northern Ireland have actually gone up a bit, although it’s not certain if they will hold up in the run-up to Brexit. if you’re looking to buy in the South and London particularly then there are better prices around than the were, although the supply is reduced because so many owners are playing wait-and-see.

If a good deal is struck, or if the UK decides at the last minute not to pull out of the EU, house prices are likely to bounce back as those who held back get into the market again. So, if you’re wanting to buy a place, and you think that scenario is likely, get on and buy now while homes are really cheap. Mortgage rates are still astonishingly low as you can find out by speaking to our brokers, London & Country Mortgages.

 

mortgage rates

Mortgage Documents

Currently, as I’ve said above, mortgage rates are delightfully low. Whether you go for a fixed rate or a tracker rate (where the mortgage interest you pay goes up and down as the Bank of England base rate goes up or down) there are really good deals to be had.

The Bank of England has already nudged rates up by a tiny quarter of a percent and they really want to put it up further but as the economy staggers under the uncertainty of a no-deal Brexit the Monetary Policy Committee (MPC) is loathe to do it.

After a no-deal Brexit, it’s likely that the economy will suffer for a while so the MPC is likely to continue to hold off raising rates. They might even cut them again. There’s not a lot to cut but there is something. In fact, some economists say that Mark Carney, the Governor of the Bank of England, put rates up slightly this year in order to give himself something to cut in an emergency.

However, as a no-deal Brexit is likely to push Sterling down, that will mean a lot of the goods and services we use every day will become more expensive. This is because we are net importers of goods in this country. We import more than we export. So the cost of the goods we import will go up as our pounds buy less abroad. This is already happening, of course.

We have already seen the price of petrol, food and home fuels go up, for example, as Sterling has gone down against the dollar, the euro and some other currencies because of the uncertainty of our situation. A no-deal Brexit is likely to push things down further, though, at least for a while.

If this happens then inflation will go up a lot and the Bank of England will have to put rates up somewhat in order to curb it. How much it could go up is uncertain but Base Rate could go up to 4-4.5%.

 

will it be a good time for me to buy?

Couple outside their first home

If there’s a hard Brexit – i.e. no deal – then house prices are likely to fall further, particularly in London and other major cities.

They may not fall as much as many are predicting because they will already have fallen a lot in the run-up to 29th March. But they will certainly be much lower than they were before June 2016.

So if you have some cash and you’re sure of your income to cover the mortgage, then post-hard Brexit could be a very good time to buy property. You’re likely to be able to pick up some bargains from people who have to sell for one reason or another. Of course there will be a limited supply of properties as a lot of owners will continue to keep their properties off the market but some people have to sell and certainly house builders will want to sell the properties they have and the ones they are building so there will be new-builds on the market if nothing else.

Although a hard Brexit will mean problems for the British economy and business as a whole, it will bounce back at some point. Different economists come up with different periods of time. Some say ten years, some twenty. Even the hard Brexiteers admit that things will be tough for a few years. But they will improve after a space of an undefined number of year (sorry, I can’t even guess how many!) and once that happens, the price of the property you bought will significantly increase.

 

rents

As more and more property owners decide to keep their homes off the market – as many are already doing now – they will try to rent them out instead. This, combined with perhaps fewer people looking for somewhere to live if the Europeans have to leave the country, could mean that rents go down further.

Again, rents have already been dropping in the capital and in some cities so they may not dip too much more after a hard Brexit but supply and demand means that it’s likely that rents in general will go down for a while at least.

 

what about my holiday home in europe?

Spanish holiday villa

Of course you’ll still be able to visit and stay in your holiday home in Europe, just as you can now in a US holiday home or one in Turkey or any other non-EU country.

t’s likely that things will cost more when you go there, as the pound drops, and it might take longer to go through Customs as you go in and out.

Also, you won’t have an EHIC card to help cover hospital and other medical costs while you’re there so you will need to have good travel insurance any time you go.

If you have a mortgage on it, you may have to pay more if the mortgage is in euros. However, if it’s in pounds then you will just pay the same as before.

If you decide you want to retire there, it won’t be as easy to do as it currently is.

One of the many issues still to be decided is whether the UK and EU countries will continue the reciprocal deal of paying pensions to ex-pats. It’s also possible that you won’t get free healthcare in the country you retire in so you will need private medical insurance.

 

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