When Britain voted to leave the EU in June 2016, many questions immediately came to light. What would this mean for trade? How would it affect travel? What would be the impact on supply chains and prices of consumer goods? Would exiting be a ‘soft’ or ‘hard’ Brexit?
Things are much clearer now that Britain has officially left the EU, but one area that has been and continues to be affected by this departure is personal finances. This huge political milestone has had major economic implications, and here we examine what Brexit has meant for UK loans, mortgages and interest rates.
Interest on second-rate mortgages has risen
In early 2019, the Financial times reported that Brexit was forcing borrowers to seek second-place mortgages in light of the UK’s economic uncertainty at the time. One provider, Thistle Finance, shared that it had seen a 12% year-on-year increase in activity in the fourth quarter of 2018.
“It is common knowledge that the second hand market is thriving and the fact that people do not want to compromise extremely low mortgage rates is certainly a key factor in this,” said Managing Director Mark Dyason.
This explains why second-cost mortgages can be better than relocation, because it means you can get the cash you need without giving up the interest rate on your current mortgage. What Loan.co.uk Notes: “If you already have a good fixed rate deal, relocation may be more expensive than you want.”
Fast forward to this day and second-place mortgages are still popular, but Brexit is no longer the determining factor, now it’s Covid-19. While some seek secured investment loans, others simply need the cash due to the economic challenges of the pandemic.
In a report from Property reporter, Matthew Corker, Chief Operating Officer of Knowledge Bank, explained: “There are those who have increased their savings by blocking and are now using a larger deposit to invest in property or add to their existing home. But there are also those who have been hit hard, either by losing their job or being put on leave. “
Interest rates have dropped significantly
Brexit has affected the Bank of England (BoE) base rate in the past. Following the 2016 EU referendum result, the interest rate was halved from 0.5% to 0.25% to avoid a post-Brexit recession, while the economic consequences of the vote were not clear.
While this was bad news for savers who received little return on their cash, this was positive for borrowers as it meant they could borrow at lower rates. In two years, the base rate had risen to pre-referendum levels, but was still only up to 0.75%.
Since then, the Brexit transition period has ended and trade deals have been agreed, suggesting that the UK’s EU breakup may no longer be as influential on the base rate. That said, according to the Bank of England’s Monetary Policy Committee February 2021 Meeting Notes, there are still companies on the Decision Panel that “cite Brexit as one of their top three sources of uncertainty.”
However, as with second-rate mortgages, the pandemic has overshadowed Brexit as the most pressing economic problem today. Currently, the base rate is 0.1%, the lowest rate in history, and has been this way since March 20, 2020. There have even been suggestions that negative interest rates could be a possibility, which means that savers would have to pay to keep the money in their bank accounts.
Borrowers, on the other hand, would end up paying less than what they borrowed. However, as MoneySavingExpert’s Callum Mason Notes: “Brexit is likely to contribute to this; However, even if it has a negative economic impact in the short term, as most economists predict, its impact is likely to be dwarfed by that of the pandemic for now, and negative rates are still a possibility plus a probability. “
Higher credit card fees have been touted for purchases in the EU
Earlier this year, it was reported that starting in October, both Visa and Mastercard plan to increase the fees they charge to EU merchants when UK credit card holders make online purchases from 0.3% to 1.5%. This could potentially affect transactions involving airlines, hotels, car rentals, and vacation companies. These interchange fees for transactions within the UK had been capped by Brussels since 2015, but Brexit means this no longer applies to payments between the UK and the EU.
On the surface this should not affect UK consumers buying on credit as these fees are charged to the merchant and not the customer. However, the concern is that EU companies will offset these charges by increasing the price of their goods and services to British customers.
However, this change is still months away, and organizations may be able to find a way around it. What BBC Global Trade Correspondent Dharshini David explains: “Since the increase will not come for several months, international companies can look for ways to reclassify UK sales to avoid the charges.”
How has Brexit affected UK loans, mortgages and interest rates?