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‘Be prepared for anything’ – The Brexit effect and lender risk

by: Pad Bamford, business development director at AmTrust Mortgage Insurance
  • 05/04/2017
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‘Be prepared for anything’ – The Brexit effect and lender risk
Now the UK has set off on the formal path to leaving the EU, after Article 50 has been invoked, it’s natural to contemplate how this might impact on our housing and mortgage markets, particularly over the two years the negotiations are anticipated to take.

In a sense of course, what we have in the UK is very unique to these isles; indeed, we’re all aware of the uniqueness of regional markets, let alone trying to work out any change in national features.

While confidence and sentiment was undoubtedly shaken by the result of last June’s EU referendum, I suspect there are more UK-specific issues which shape the market here, rather than any overwhelming EU-related impact.

Indeed, if we’re talking about consumer confidence in housing, then we can perhaps look to the public’s anticipation around house price growth (or otherwise) and how it believes this will unfold.

Recent figures from the BSA’s Property Tracker appear to suggest that almost half of all consumers (49%) believe prices will continue to rise over the next 12 months as opposed to falling (10%).

This is an increase on the immediate post-referendum period in September last year when the corresponding figures were 42% (rise) and 17% (fall).

Consumer confidence


Again, I’m not sure we can suggest this is because the UK consumer is overwhelmingly confident about the negotiations to leave the EU falling well for this country.

In fact, the likelihood of house price increases is far greater in an environment where new-build property supply severely lags demand – even with the publication of the government’s Housing White Paper I don’t believe anyone is anticipating this situation to change radically anytime soon.

Where however we might start to see a specific EU-related impact is around financial institutions themselves – we have already heard a number of foreign-owned banks, with a significant presence in the UK, suggest they could up sticks in light of the EU decision.

It doesn’t take a great leap of faith to suggest that those institutions’ appetite to lend in the UK housing market might be tested by the ongoing negotiations, and we may well find that they begin to reel in their lending activities in the months and years ahead.

Risk of Brexit


Clearly, we have a competitive mortgage market at present in this country, but again it’s not impossible to envisage that, as Brexit takes shape, the attitude to risk of all lenders might be reshaped by what deal can (or can’t) be secured.

Higher-risk sectors and niches – that are already under pressure – might find a lending community unwilling to offer loans at higher loan to value (LTVs) or offer deals to those borrowers who might fall close to the line in terms of affordability measures.

At present, the situation appears stable, but it also seems clear that uncertainty around the future position of the UK and also the strength of our economy, including the housing and mortgage markets, will result in some upheaval.

The advice perhaps for your clients, and your businesses, over such an uncertain period is to be prepared for anything.

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