Using its proprietary risk modelling tool, the specialist lender’s analysts tested a series of scenarios based on 750,000 loans with an outstanding value of £97.2bn across the UK mortgage lending market.
The model shows that, with a no-deal Brexit involving no government intervention, there would be a sharp increase in the number of borrowers falling more than three months behind on their repayments, potentially one third higher than if Britain were to remain in the European Union.
This would mean that by spring 2022 there would be 70,296 Britons more than three months behind on mortgage repayments, compared to 52,755 if Britain were to remain in the EU.
Repossessions would also rise by about ten per cent.
The model also forecasts that, five years after a no-deal Brexit, an extra one million Britons would still be repaying a mortgage.
Under current conditions, the same people would have either refinanced away from their existing lender or taken outright ownership of their home.
This would be driven by an expected decline in house prices and reduced mortgage finance availability, that would impact the amount of equity in the typical mortgage account.
Over the same five-year time frame, new mortgage lending would drop by about 17 per cent relative to what would be expected without a British departure from the EU, and comparatively benign housing market conditions.
How the analysis works
The economic assumptions used in Kensington’s analysis are similar to the official models used by the Office for Budget Responsibility (OBR) and assume that house prices would grow 18 per cent in the following five years and unemployment would remain flat.
Kensington’s Vector tool, which tracks the performance of loans over the past 20 years, predicts detailed information on loan repayment patterns and a borrower’s ability to repay debts when presented with forecasts for house price movements, unemployment levels and other macro-economic inputs.
Kensington also modelled what would happen in a no-deal Brexit where the Bank of England launched a large-scale intervention in financial markets, offering emergency liquidity to the banking sector and a reduction in market interest rates.
Under this scenario, the impact on homeowners would be substantially reduced. On some measures, homeowners would be better off in this scenario than they would were Britain to remain in the EU – although this gain would come at the expense of the public finances.
With a large-scale Bank of England operation in place, the model suggests that the number of borrowers more than three months behind on payments would be 3.7 per cent lower than if Britain remained in its current trading position with Europe. The level of defaults would be unchanged.
Bank of England would have to intervene
Commenting on the research, Mark Arnold, CEO of Kensington Mortgages, said: “Leaving the EU with no deal in place would, according to our model, see more homeowners struggle to make their monthly payments.
“Our expectation, however, would be that if we did end up exiting without a deal then the Bank of England would step in, as Mark Carney has hinted recently, and stabilise the market.
“Yet that would come at a cost to the taxpayer, with the public finances propping up homeowners at other people’s expense.”
Hurt first-time buyers
He continued that the data shows more people were struggling to get on the housing ladder, with the number of mortgages falling every year since 2008.
“If there was an intervention it would mostly benefit existing home owners by inadvertently artificially propping up prices, to the detriment of would-be first-time buyers.
“So there would likely be some collateral damage under a no-deal scenario, and the number of mortgages may fall further still as a result.”