What will the election mean for your mortgage?

January 04, 2020
Taryn Lee-Johnston

Regardless of how you feel about Brexit, it’s probably good news that one way or another, the issue is likely to be resolved in the near future, so we can all get on with making plans for our future.  Since we all need somewhere to live (as do our family and friends) this means that the state of the housing market is likely to be a significant consideration for us.  With that in mind, here are some thoughts about what the election could mean for your mortgage.

A weak pound could see the arrival of higher interest rates

The Bank of England is charged with keeping inflation at 2% and has a margin of error of 1% either way.  If inflation is too low, the Bank of England can lower interest rates and/or use quantitative easing to stimulate the economy.  If inflation is high, however, then its only option is to raise interest rates.

In principle, the government could choose to make life easier for borrowers by raising (or even eliminating) the inflation target, thus allowing the Bank of England to keep interest rates at a lower level.  This could potentially be good news for mortgage holders, although there are other economic factors which are likely to play a role in just how happy they would feel.  In practice, the government might be very wary about doing this, since excessive inflation has consequences for everyone.

All that being so, mortgage holders might want to think about their ability to service a mortgage if interest rates were to rise significantly.  In theory, they could rise indefinitely.  For practical purposes, however, you might want to use 20% as your absolute maximum (based on the fact that since 1979, the highest the base rate has been is 17%).  If this is a frightening thought, then you might want to look at fixing your mortgage rate, possibly for as long as five years, so give yourself the best chance of working out which way the wind is blowing and what you want (or need) to do about it.

Brexit could mean a significant readjustment of the UK’s economy

In principle, it is still possible that the UK government will negotiate a soft Brexit.  In practice, this is looking increasingly unlikely.  Boris Johnson has made it very clear, he intends Brexit to happen on (its latest) scheduled date of 31st January 2020 and it’s hard to see how any sort of soft-Brexit deal could be negotiated during that time, let alone preparations made for implementing it.

To be fair, all changes tend to have “winners” as well as “losers” but in the case of Brexit, the stakes are very high and hence so are the short-term risks to anyone who depends on the EU for a significant portion of their livelihood.  If you’re concerned about your ability to pay your mortgage in a post-Brexit environment, then it’s recommended to deal with the situation as quickly as possible and ideally to take professional advice.

If you conclude that it would be best for you to sell your home and rent for the time being, then it is usually best to do so on your own terms, rather than waiting for circumstances to force you to do so.  The good news here is that achieving clarity over Brexit may increase the activity from buyers who will finally have some clarity on what the future is likely to hold for them.

You may, however, discover that you can manage your mortgage by making some adjustments to your lifestyle and/or your finances.  For example, it might be possible to remortgage on a product with a longer-term, so as to make the monthly repayments more affordable.  This could increase the amount of interest you pay overall, but you might consider this a price worth paying.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

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