You’ve heard the news: Brexit will soon be a reality. After 11pm on 31 January 2020, the UK will no longer be counted as part of the European Union. But, what does Brexit mean for you? Will mortgage rates go up after Brexit? What about Brexit property prices? And – more specifically – what kind of impact will Brexit have on homeowners, investors and those hoping to get in on the property market? Here we lay out the facts.
Brexit is happening on 31st January. What comes next?
The UK’s departure from the EU will be formalised on 31 January 2020 but that’s only the beginning. We can anticipate many more months of negotiation even though the UK has already agreed to terms for leaving the EU. The reason for this is that both sides – the European Union and the United Kingdom – need to define the parameters for their future relationship. Terms will be worked out during the implementation period or transition period, which is set to begin on the first of February and end on 31 December 2020.
A Withdrawal Agreement that covers the transition period ensures that the UK will retain its current trading relationships. In addition, it will continue to abide by the EU’s rules, even though it will no longer be a member state.
What will be agreed during the Brexit transition period?
The implementation period is intended to provide both the EU and the UK with some much-needed breathing room while the terms for a new free trade agreement are worked out.
This is necessary as the UK is leaving the single market and customs union behind once the eleven-month transition period comes to an end. In essence, a free trade agreement means that goods will be able to move across borders throughout the UK and the EU, minus any time-consuming checks or additional fees.
What will happen if no free trade agreement can be implemented? While it’s likely that both sides will be able to come to terms, the absence of an EU-UK free trade agreement would lead to cumbersome trade barriers including tariffs on UK goods bound for destinations throughout the EU. Although the European Commission is concerned that the 11-month timetable could pose a challenge, Prime Minister Boris Johnson is confident that the implementation period will not need to be extended.
Brexit mortgage rates
There’s no easy way to predict how Brexit will affect mortgage rates. The outcome on ‘Brexit mortgage rates’ depends largely on whether Britain opts to carry on with regulations implemented during its time as an EU member state, or if it chooses to go another direction entirely. It is possible that the mortgage market will see changes in the coming years. For now, the housing market is looking up.
According to UK Finance, December of 2019 saw UK banks approving the highest number of mortgages since April of 2015. This was a sharp uptick in mortgage approvals for house purchases from the previous month, with December’s approvals at 46,815 and November’s at 44,058. These numbers come on the heels of news that the Bank of England is considering cutting interest rates following a general flatlining of the UK economy during the final months of 2019, along with a drop in inflation and plummeting retail sales.
London’s top economists believe that borrowing costs will hold steady if interest rates are not cut below the current 0.75 percent. In addition, the overall outlook for the housing market will depend on the outcome of anticipated Brexit talks and trade negotiations.
What is the best move for buyers and sellers?
Even with questions hanging in the balance, buyers and sellers who have been delaying decisions about how to proceed should now be prepared to move forward.
Mortgage providers are poised to compete in an effort to provide consumers with attractive rates. Should low mortgage rates continue, those considering borrowing would do well to strike while the iron is hot and invest in the property market after Brexit.There’s more to the story, though. Post-Brexit, it’s possible that the country could stop complying with the EU’s 2016 Mortgage Credit Directive (MCD).
The conduct standards outlined in this piece of legislation meant strict standards for those tasked with the sale of residential mortgages. At the same time, the directive has been sharply criticised for creating so-called mortgage prisoners. These people are essentially locked into a specific set of unchangeable mortgage terms that leave them paying more even if their financial circumstances change. Clearly, changes to MCD legislation would likely be welcome should the Government opt to enact them.
If your current mortgage rate is coming to an end or you think you could get a better deal, consider remortgaging with Portico Finance. But before you do, make sure you get your property revalued (you can do this in a few simple clicks through clicking the link). This will make your lender recalculate your loan to value, and a lower loan to value means a better interest rate and a larger choice of lenders. Find out about mortgages through Portico Finance or give our mortgage experts a call on 0207 731 9680.!
Brexit property prices
What will happen to property prices after Brexit? During the last three and a half years that have passed since the referendum, the UK overall has seen a reduction in the number of homes offered for sale along with a corresponding decline in house price growth. This has been a result of seemingly endless negotiations surrounding Brexit which has led to an atmosphere of increasing uncertainty.
This graph compares average house prices in greater London with the rest of the UK. The red line is house prices in England and Wales; the blue line is house prices in greater London.
What we can see from the graph is that greater London average house prices have remained relatively flat over the last couple of years, contrary to a lot of the scare-mongering, Brexit or election-related media headlines.
The average house price in greater London now stands at £620,000.On the other hand, if we look at England and Wales we can see that house prices have seen a slight increase, probably to the tune of about 3% or 4%. The average price is now hovering around £305,000 - £310,000.
Vatche Cherchian, Portico’s Regional Director, says: “But while house prices in London have remained relatively flat over the last couple of years, wage growth hasn’t. We’ve actually seen a 4% growth year-on-year in wages. And if you tally that wage growth increase up against flatlining London house prices, what you’re saying in real-terms is that it has become around 10% cheaper to buy a property, which is encouraging.”
The next graph shows transactional volumes in London over the last twenty years.
Currently transaction levels in London are standing at around 90,000 a year, and have been at this level since 2017. When we compare this to the start of the financial crisis in 2007-2008, volume levels are slightly lower. But, it’s really encouraging to see we are still around 30% higher than the staggeringly low transactional levels in the depth of the crisis in 2008-2009, 10 years ago.
Cherchian said: “The current transactional volumes in London are encouraging. When we look at the market a decade ago, the financial crisis had an overnight impact; the banks stopped lending, there was an abundance of properties available but people couldn’t buy. Though the market has seen a gradual decline in transaction volumes over the last four years, there hasn’t been a dramatic Brexit property crash. And property prices historically following volume decline, which is why we’ve seen a softening in London house prices rather than a big fall as many expected.”
In 2018 we saw a 3% increase in sales stock listed on the market. In the same year we also saw the volume of transactions reduce by 6%. Effectively, this meant that in 2018 the volume of transactions remained exactly the same. In the current 2019 market, sales stock is down 24% year-on-year but the volume of transactions increased by 6%.
What this means is that there’s far less properties currently available to purchase, but a higher percentage of those properties are being transacted on. In other words, there is some movement in the market! This is encouraging as we move toward 2020, and again, a reason why we haven’t seen and don’t expect property prices to crash.
Brexit and the rental market
Interestingly, when we look at the rental market it’s a different story. Rental stock is down massively in London year-on-year, probably to the tune of about 25-30%. This is due to a couple of factors:
- We’re seeing less new landlords enter the market (and landlords sell up) due to tougher legislative and tax changes
- More tenants are renewing their tenancies than ever beforeTogether these factors equate to less properties on the market for rent.
And a huge surplus of demand from tenants but a low supply of stock is the reason why rental prices have been increasing over the past year.
If you want to read more on Brexit property prices, check out our complete London property forecast and report.
Property market after Brexit
Now that the path forward is becoming clear and uncertainty is coming to an end as Brexit becomes a reality, house prices should increase.
Rightmove states that house prices increases over the month of December represented the fastest rate on record for that time of year. Their analysis interpreted the bounce back as a sign of greater confidence about the housing market overall, on the parts of buyers and sellers alike.
Similarly, Homes and Property state, “House prices in London are forecast to rise by one per cent this year and 2.5 per cent next year, before it jumps to 4.5 per cent in 2022, as the property industry glimpses a light at the end of the Brexit tunnel.”
As stability returns to the property market after Brexit, we predict that homebuyers and sellers will have the confidence required to return to the housing market. Sellers in particular have the incentive required to move forward now that there is a good likelihood that they’ll receive better offers.
Read more: What a Conservative win means for the property market
Holidays after Brexit
Next is the question on many people’s lips: “Will Brexit affect my holiday?” In short, no - not yet. During the transition period, travel and related arrangements will continue as before until the end of December of 2020 and perhaps longer. Here are the key facts as stated on the BBC and other influential sites on holidays after Brexit:
- Britons traveling to Europe will not need a visa this year
- The European Commission is currently offering an extension on visa-exempt travel to Europe from 2021 for a fee of just €7
- There will be additional border checks, but this will only add an estimated 90 seconds per UK passport holder to get to their destination
- While this doesn’t sound like much, the Telegraph explains that as the average Ryanair flight has 189 passengers, it would take five hours longer for a single EU passport lane to process everyone
As for driving, ABTA stats that those with full UK driving licenses won’t need any additional license to drive in the EU – at least for now. Even so, the Government says that Britons will be required to carry an international driving permit (IDP) to drive in certain countries. It’s a very good idea to check regulations well in advance of your planned travel dates to ensure trouble-free enjoyment of your holiday.
Will my passport be valid after Brexit?
Your British passport will remain valid, but after Brexit you will no longer be an EU citizen. For the duration of the implementation period, Britons can use their existing passports to travel in and out of Europe without a visa and without the need for additional travel documents. Last year, travel experts cautioned people visiting the EU to ensure that their passports had at least six months of validity in the event of changes to EU travel rules. After Brexit is finalised, it would be wise to get a new passport.
What about my savings? Will my bank accounts suffer post Brexit?
Now that the threat of a no-deal is fading into the sunset, it’s not likely that Brexit will cause a drastic change in your financial outlook. Still, the way Britons interact with European banks after 31 December 2020 remains to be seen. Past months have seen falling interest rates connected with uncertainty surrounding Brexit and the potential for economic woes but it seems as if this trend is finally coming to an end. Between now and the end of the transition period, it’s likely that interest rates will rise and benefit those who’ve been putting money in the bank.
For those who save, a successful Brexit means a sunny outlook so far as money is concerned. It also means that expats should be able to access their UK-based accounts without worries. At the same time, there is some uncertainty surrounding the way Brexit will impact the Bank of England (BoE) bank rate, which often plays a role in determining costs associated with financial deals.
Get in touch for a post Brexit property valuation
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