Spotlight: Brexit and mortgages

Spotlight: Brexit and mortgages

What is the state of the UK housing market post-referendum? Laverne Hadaway finds out

After the warnings of dire consequences if Britain voted for Brexit and the initial shock of the outcome, everything appears to be relatively rosy in the UK mortgage market. Many of the organisations that predicted economic disaster as a result of a vote to leave the EU are changing their tune and suggesting the consequences might not be quite so dire after all. Both the International Monetary Fund and the Organisation for Economic Co-operation and Development  appear to have revised their perspectives on the economic outlook in the UK following the referendum result.

The Royal Institution of Chartered Surveyors (Rics) says that following “a significant drop in activity and price expectations in the wake of the EU vote,” its UK residential market survey for August 2016 shows a “pick-up in confidence”. It explains that while sales declined sharply in the aftermath of the referendum during June and July, volumes stabilised in August. In some parts of the country, sales are still falling, but expectations have noticeably improved. 

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A shortage of housing stock is said to be a key factor: the survey reports that new instructions fell in August leading to a reduction in the number of properties on estate agents’ books for the third month running.

While the latest figures from the Council of Mortgage Lenders shows a drop in the number and value of transactions (see Table 1), the CML says it is hard to tell whether the figures reflect an initial reaction to the referendum or just show the market was already cooling. However, these figures suggest the UK economy has “averted a hard landing, at least for the time being,” but notes many commentators have been “shading down” growth forecasts.

Back to normal

From the mortgage adviser’s perspective, things are relatively back to normal. “Now the summer holidays are over it seems to be business as usual,” says Joshua Gerstler, financial adviser and chartered accountant at The Orchard Practice. He acknowledges that there appeared to be some nervousness in the market and a slowdown immediately after the vote result because of the uncertainty.

But the suggestion that things are back to normal applies to lenders’ rates too. Mr Gerstler says rates feel similar to how they were before, despite the cut in the Bank of England base rate. His suspicions are confirmed by a report from Moneyfacts, which suggests many lenders increased their standard variable rates and trackers just before the rate cut announcement only to cut them in response, effectively leaving them unchanged.

Psychological benefit

For some borrowers, the savings on their monthly payments are so small they are unlikely to provide much of a material boost to the economy. The CML says that a typical SVR customer would see monthly mortgage payments fall by no more than £20. Mr Gerstler says that while the interest rate cut will not make much difference for most people, the benefit is likely more psychological. However, he is concerned that high levels of debt and borrowing remain in UK households and suggests that after their experience of 2008, consumers should be more cautious.