How will Brexit affect your mortgage options in 2021?

Despite 2020 being a long and drawn-out year, one of the protracted side-shows that is coming to an end is what type of Brexit we will end up with. Parliamentary consent notwithstanding, the UK has emerged with a trade deal with the EU. So, perhaps this is one less thing to worry about in 2021.

But what does this mean for those who are looking to take out a mortgage in 2021?

There are two key ‘Brexit factors’ to look at that will affect mortgage options next year: how the economic effect of leaving the EU will impact house prices, and how the same ripple effect will impact lenders’ appetite to lend.

With regards to house prices, most commentators fully expect there to be at least a short-term impact on the UK’s economic output. Economic output has a real impact on house prices, because when people are uncertain about job security, there is a much lower demand to move home. The Office for Budget Responsibility has predicted a long-term reduction in economic output of 4% for the UK. This in turn means less tax raised by the Government, leading to increased Government borrowing, and we have already started to see increased unemployment due to the pandemic which will, in the short term, be amplified by Brexit.

Despite the UK housing market being very resilient to the economic downturn caused by the pandemic, house prices are still determined by demand, i.e., there being more people looking to buy than available property stock. Given the predicted rise in unemployment, alongside the short-term stamp duty holiday which ends in March, house prices are unlikely to continue climbing after March 2021.

The movement of house prices is obviously important if you’re looking to buy, as the purchase price needs to be within affordable means. If you’re already a homeowner it is even more important if you’re keen to get the best rate on your mortgage, as lenders reserve their best rates for those whose ‘loan to value’ ratio (the percentage of your property value that is mortgaged) is 60% or less. Rising house prices and reducing mortgage balances mean a lower loan to value and access to better rates, whilst house prices that are reducing quicker than the mortgage could mean only mediocre rates are available.

Regarding the second Brexit-factor, whether mortgage lenders want to continue to lend on the same basis, this one is harder to predict right now. What we do know is that lenders become very cautious about who they lend to when there is an economic downturn, regardless of whether that is because of Brexit, the pandemic, or both. This has been seen in the lack of competitive mortgage deals for first time buyers with 10% deposits since the summer of 2020 until very recently, and also with much tighter criteria for the self-employed.

The reality for lenders is that they are sat on piles of money to lend, which doesn’t deliver a return for them or their investors if they don’t lend it, so they must balance lending the money on the right basis prudent lending that avoids defaulted payments by the borrower. How they strike that balance in 2021 is the unknown factor right now, but a good mortgage broker can evaluate the lending landscape for any borrowing requirements and give a good appraisal of options that exist in the short term.

Smartr Finance can evaluate these options, irrespective of need, to find the most competitive mortgage option from the whole of the mortgage market. Contact Smartr Finance with your requirements via the Free Quote button.