The issue of a Brexit has been examined from almost every conceivable angle, from its effects on Brits’ holiday plans to whether or not it would trigger another Scottish referendum. Amid the raised tensions of various camps attempting to raise their concerns about the aftermath of either outcome, how clear is the effect of a Brexit on the mortgage market?
Living in an MCD world
The influence of Europe on our mortgage market is already in sharp focus, just days away from the final implementation deadline for the European Mortgage Credit Directive. The European Commission said its aim with the Directive was “to create a Union-wide mortgage credit market with a high level of consumer protection”.
This seems largely to have failed to trigger any concern about our own regulation should the UK no longer have membership of said Union, with the Council of Mortgage Lenders has assuring that, in or out, the implementation of the Directive “is likely to be unaffected by the outcome”, and noted that there would be ‘no immediate regulatory effect’.
Rules that were brought in by the Financial Conduct Authority in order to meet the European requirements have now been ‘enshrined’ in UK regulation and it seems unlikely that any immediate changes would be made as the dust settles on its implementation.
So does this mean a Brexit will pass the mortgage market by entirely? Some feel that a vote to leave wouldn’t - directly - have ‘a massive impact’, as Investec chief economist Phil Shaw said last week.
Speaking at a broker insight evening, Shaw said the top end of the property market - particularly in London - could be the area where the market would see a more immediate impact.
He said: “You [...] have the fear of capital leaving the UK, which would itself make a difference at the top end of the market”, but he was keen to note that, overall, the UK housing market was driven by demographics and regulation, neither of which would be dramatically affected by leaving the European Union.
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The age of uncertainty
If only the top end of the market would see an impact, is there any reason to be concerned?
In its latest Investment Clock report, Royal London Asset Management said:
“Even though the status of the UK vis a vis the EU would not change the day after a vote for Brexit, a marked rise in uncertainty would be a shock to economic confidence, impacting the spending plans of households and firms.”
It’s an opinion that appears to be echoed by many in the industry.
Head of Lending at Regentsmead, Ashley Ilsen, agreed that uncertainty would be the sting in the tail of Brexit, and added that “it makes our jobs as lenders all the more interesting, as it may come down to us to help plug the gap in investment and help fuel another economic recovery” if, as predicted by some, a vote to leave the EU triggered another economic crisis.
This uncertainty could weaken the pound which could lead to increased interest rates from their current record lows to encourage spending within the UK - something which Bank of England Governor Mark Carney expressed concern over in a recent evidence-giving session with the Treasury Committee.
Seeing the woods for the trees
Like many things in an unpredictable market, the impact of a Brexit won’t become entirely clear unless it happens. Even then, the process of withdrawing from the European Union is neither quick nor clean-cut - with two years of negotiating the terms of our exit with other member states in the case of a vote to leave, it will be some time before it’s clear which way the land will lie in a post-EU Britain and, in the negotiation period, uncertainty may have a knock-on effect.
