Currency, mortgages, house prices, tax, pensions & investments
Whether or not you voted Brexit or Remain, the results are in, and it’s “out” – the UK is set to leave the EU. The exact course of how things will unravel is somewhat unclear, however these are considered uncertain times; financially, economically & politically.
This does not constitute advice and advice should be sought in all instances before acting on it..
How Brexit could affect UK currency
The first thing that happened when the markets knew the UK was to leave the EU, was a sharp drop in the value of the pound – the lowest it has reached since 1985. The pound has been weakening through the campaign period as uncertainty deterred investment.
Inflation is highly likely to be affected in due course, with an increase in the costs of goods and services from other countries so expect this to be a rocky road for the UK pound.
How Brexit could affect mortgages
The cost of borrowing could increase following Brexit because, to counter inflation, the Bank of England (BoE) may increase interest rates. During the campaign period Cameron predicted mortgages could cost on average £1,000 more per year, with a Brexit result.
On the other hand though, if the UK economy takes a severe tumble, the BoE may have to keep rates low, or even drop them further. It is really in the hands of the BoE though as to what they decide is best for the long-term financial strategy.
If mortgages costs to landlords increase, therefore rents could also rise accordingly.
How Brexit could affect house prices
House prices have been rising steadily, with pace, over the past few years, almost to the point that a “bubble” was feared. It has been good news though for many home owners all across the country.
Brexit is expected to cause a fall in house prices, particularly in London. The International Monetary Fund (IMF) expects a sharp drop due to an increase in the cost of mortgages.
The National Association of Estate Agents (NAEA) also predict house prices will fall, with London homes potentially taking an average £7,500 drop over three years, instead of continuing to rise should the UK have remained in it’s current position.
The Treasury predict between 10% and 18% fall in the next two years for house prices.
This could be good news for first-time buyers but for home owners it is quite the opposite. If the BoE do cut rates this could be a way to stabilise the housing market, but again, the ball is in their court.
How Brexit could affect tax
George Osborne warned that Brexit could mean tax increases were essential to meet the promises of a UK surplus by 2020. The basic rate tax could be increased by 2p, higher rate tax by 3p and Inheritance Tax potentially by 5p.
What is considered more likely though is that the period of austerity would be extended past 2020, as increases in tax would go directly against promises made in the previous election. A further two year period of cost cutting is forecast by the Institute for Fiscal Studies (IFS) following Brexit, as growth will slow.
How Brexit could affect pensions
It is not fully clear yet how Brexit could affect Pensions, however, the “triple lock” for state pensions could be under threat. The triple lock is the agreement for pensions to rise by the highest of the level of earnings, inflation or 2.5% per year.
If the economy falls and lowers national income, the BoE could take action with pension annuities instead of cutting interest rates – it’s an option, but it is too early to know for sure.
How Brexit could affect investments and savings
Savers would appreciate a rise in interest rates, assuming they don’t have a mortgage.
However, shares are expected to fall in value as they become less attractive to foreign investors due to uncertainty.
Longer-term though things may change and businesses with a high volume of exports may benefit from weaker UK currency, although businesses with high import volumes may suffer.
It’s all unknown right now
We use the terms “How it could affect…” as the full economic implications of Brexit are unknown right now, so it leaves lots of unanswered questions. There will be much market speculation in the coming weeks and it will be a case of playing the waiting game now as terms are negotiated.
In these uncertain times, it is important to take advice from professionals, particularly if you had plans for buying a home, making pension contributions or investments – Brexit may have changed the position from when you first started thinking about it.
Discuss your plans with Darren
Dental & Medical Financial Services work with excellent partners who have been preparing the grounds for Brexit or Remain. We can help reassure you and work out your next move. Call Darren today.
Tel: 01403 780 770