With the EU referendum just around the corner and polls looking extremely tight, the impact on borrowers is an increasingly pressing question. The true answer of course is that no-one really knows and while we try to remain neutral on these things, here are a couple of educated guesses.
In the short term a vote to leave would almost certainly mean new mortgage rates would go up, for the simple reason that no-one has ever done this before and the financial markets really don’t like uncertainty.
Until the way forward becomes clear (which could take a couple of weeks, or several months) it’s likely that banks would find it harder to raise funds on the money markets and may well be more cautious about lending generally. That would tend to push towards a temporary increase in interest rates and possibly tighten lending policy until they feel more confident.
We saw this effect a few years ago when Greece was facing a potential EU exit due to her financial crisis – and that was fairly removed from our domestic situation. Presumably a direct and actual exit here in the UK would have no less of an impact.
Beyond that, say six to twelve months from now, it’s a lot harder to tell and in many ways the plausible answer will depend on your position in the debate – though perhaps for surprising reasons.
If you believe Brexit would lead to worse UK finances, austerity and recession, as Remain argues, well it’s hard to imagine the Bank of England would be keen to increase the cost of borrowing under those circumstances. That’s not to say mortgages would stay at the current levels because ongoing uncertainty would mean lenders remain very cautious, but in the face of a weaker economy it doesn’t seem likely there’d be wholesale increases in Base Rate or mortgage rates generally.
On the other hand, if you accept the argument that Britain would be better off outside the EU, that might (perhaps perversely) point to generally higher mortgage rates, sooner. The ongoing question since the credit crunch has been, “is the economy strong enough to tolerate higher interest rates?” and so far the answer has been No.
If Brexit led to significant improvements in the UK economy, it follows that the Bank of England may feel more able to increase Base Rate, and thus the cost of mortgages for all.
Of course much of this also applies if the vote goes to remain within the EU. We would be less likely to see the short-term shock, but in the longer run what you expect mortgage rates to do will largely depend on whether you believe the economy will be stronger or weaker.
In some ways this whole question is a salutary lesson in not attempting to second-guess the market. We don’t know what the outcome of the referendum will be, and nor do we know what the consequences would be either way. All you can really do is focus on your particular circumstances and needs – the question really isn’t so much “would Brexit mean higher mortgage rates?” as, “how comfortable or concerned are you about the uncertainties ahead?”. But of course that’s not nearly as snappy.
Whichever side of the debate you’re on, if you’re concerned about what the referendum outcome might mean for you, check our best buys and calculators to see whether you can cut your mortgage costs or secure a fixed rate.