Trying to weigh up the potential impact of the UK leaving the EU on the mortgage market, just a few days after the result seems rather futile. Whatever you’re feeling it is effectively a jump into the dark. We may land, then spring cat-like on our feet and sprint away across open ground, or we could break our ankle, lie there untended for a long time before crawling to the nearest ditch awaiting rescue. We just don’t know.
So, what of the mortgage market? Given our advisory role and the fact we will need to explain to potentially nervous clients what this might mean, it makes sense to look at some of the key questions and deliberate on how certain sectors may very well adapt to the move away from the EU.
Firstly, when it comes to mortgage pricing the prevailing view prior to the referendum was that mortgage rates would go up. However competition has actually been rather strong with some market-leading rates making their way to market. My own view is that, for the short-term at least, pricing will remain low and attractive – there are some spectacularly good fixed-rates available and I suspect more lenders will follow.
For those on Bank Base Rate trackers, the good news is it looks unlikely that there will be any movement up from the 0.5% mark anytime soon. Indeed, one might say that the next move is much more likely to be down, especially if the Monetary Policy Committee feel there is a need to stimulate the economy over the coming months.
However, demand for property, and therefore mortgages, is a bigger unknown and there’s no doubting that it was hit in the pre-referendum months and I’m not anticipating it to increase much throughout the year. This seems even more like a buyer’s market and one suspects vendors will be under some considerable bargaining pressure. The anticipation has to be that house prices will fall at least a small way over the next year or so – whether it hits the 10-18% falls we were promised pre-referendum is another matter entirely. One would hope not.
In other sectors we await the reaction. Remortgaging might secure a boost if rates rise but again this looks unlikely; and buy-to-let remortgaging will be helped by the changes to underwriting due to be introduced next year. Lender appetite overall should be sustained, it’s whether they can secure the right type of business to match their risk appetite. In perceived higher-risk areas, such as lending at higher loan-to-values, lenders may look to dial back activity. The good news is that since the credit crunch banks are well capitalised and lending remains a core business for them.
The short-term route may therefore be bumpy but we should hopefully return to stability and growth in the medium to long-term. For now however the jury is most definitely out when it comes to how the market will perform.