"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."
A no-deal Brexit would lead to a 30% increase in mortgage arrears over the next three years and a 17% drop in mortgage lending over a five-year period, according to data analysis by Kensington Mortgages.
Using its proprietary risk modelling tool, Vector, Kensington tested a series of scenarios based on a representative data set of 750,000 loans (with an outstanding value of £97.2 billion) across the UK mortgage lending market.
Working on the assumption of a no-deal Brexit, with no government intervention, the model shows that there would be a sharp increase in the number of borrowers who would likely fall more than three months behind on their repayments.
The modelling predicts the number of borrowers in arrears would be 30% higher than it would 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 10%, according to Kensington projections.
The model also forecasts that, five years after a no-deal Brexit, an extra one million Britons would still be repaying a mortgage who, under current conditions, would have either refinanced away from their existing lender or taken outright ownership of their home.
Over the same five-year time frame, the data shows that new mortgage lending would drop by about 17% relative to what would be expected without a British departure from the EU.
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.
With a large-scale operation in place, the model suggests that the number of borrowers more than three months behind on payments would be 3.7% lower than it would if Britain remained in its current trading position with Europe, however this gain would come at the expense of public finances. The level of defaults would be unchanged.
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.
“The data shows that more and more people are 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.”