Brexit and the Mortgage MarketBy Tony Wornell
13 January 2017.
All UK markets are affected by the 2016 Referendum vote to leave the EU (‘Brexit’). This article looks at the early impact on the mortgage market.
Since the Brexit vote in June 2016 and the subsequent reduction in BoE base rate in August, the political and economic outlook for the UK has been under-going a sea change. These macro events swash over and potentially affect all consumer and business markets in the UK. This article looks at how these events have influenced consumers in the mortgage market, specifically the extent to which these events have encouraged or deterred consumers’ intentions to purchase property or to re-mortgage.
The impact of Brexit is, of course, an unfolding story. We measured the impact on the mortgage market in November 2016, as part of our Mortgage Achilles study. Each year, this evaluates ‘the mind of the mortgage market’ - how mortgage holders and potential first time buyers are feeling about their situation and their intentions to seek mortgage finance over the next year or two.
Among mortgage holders, the self-assessed impact of the Brexit vote on their intentions to either move or re-mortgage over the next 1-2 years was mildly depressive. The impact of the base rate cut, conversely, was mildly positive:
|MORTGAGE HOLDERS’ INTENTIONS TO MOVE / RE-MORTGAGE|
|Impact on intentions||Brexit Vote||Base Rate Cut|
|Net (encouraged – deterred)||-2||+2|
Among mortgage holders, a net positive impact from the base rate reduction counter-balanced a net negative impact of the Brexit vote. As such, the BoE’s action in cutting the base rate in August 2016 looks well-judged and proportionate.
There was a difference however between the re-mortgaging and home movement markets. Netting together the Brexit vote and base rate impacts, the overall impacts were:
- Intending to re-mortgage: net +2%
- Intending to move home: net -1%
The overall effect of these major events was therefore mildly depressive on property purchase intentions and mildly supportive of re-mortgage intentions, the latter also encouraged by interest rates on new mortgages being at their lowest ever in November 2016.
First time Buyers
Turning to the views of potential first time buyers (FTBs), we survey the ‘Young Un-mortgaged’ - adults aged 18-49 who are renting or living with parents. These form the prospect pool from which future FTBs are drawn. The impact of the Brexit vote and base rate reduction on the Young Un-mortgaged was more negative than the impact on existing mortgage holders:
|YOUNG UN-MORTGAGED INTENTIONS TO PURCHASE A HOME|
|Impact on intentions||Brexit Vote||Base Rate Cut|
|Net (encouraged – deterred)||-7||-1|
Taken together, the combined effect of both events on the Young Un-mortgaged was a net -8% in the share intending to purchase a home in the near future.
We do not have directly comparable figures for the impact on mortgage intermediaries. Looking at their business confidence, however, in the 12 months to November 2016, we saw a shift of around 20 percentage points away from feeling ‘very confident’ about the business outlook towards feeling ‘fairly confident’. Verbatim comments suggested that this change reflected the impact of both the Brexit vote and the growing limitations on Buy-to-Let lending which are being phased in by the government. Among mortgage intermediaries, therefore, the net effect of the Referendum and base rate cut appears to have been slightly depressive of business confidence but it certainly has not destroyed it (we saw no lift in the share who were ‘not confident’ about the business outlook).
Summarising, the overall picture is that the great majority of potential mortgage seekers were uninfluenced by the Referendum and the subsequent base rate cut. Among those who were influenced, the net effect was to depress intentions to purchase property, especially among FTBs, but marginally to encourage intentions to re-mortgage among existing mortgage holders. The base rate reduction was clearly key in mitigating the impact of the Brexit vote: without it, the Brexit vote would undoubtedly have had a greater negative impact on intentions to move or re-mortgage.
It is also worth noting that these events occurred at a time when consumers’ self-assessed financial outlooks were strong – better than at any time since 2009, when we started monitoring this. If personal financial outlooks had been weaker, the negative impact of these major events could well have been more marked.
Moving forward, what is the prognosis for the UK mortgage market as we progress through the Brexit negotiations and into the post-EU environment? So far, we have got off lightly. In future, it seems likely that things will get tougher. We will continue to monitor market dynamics via Mortgage Achilles and in particular how the impact of Brexit relates to the more typical background levels of market dynamics established via Mortgage Achilles over the last 20 years.
‘Understanding Markets’ is one of the eight business challenges that we specialise in solving at BDRC. The markets you work in are constantly evolving – new entrants, new demands from customers, changes in legislation or a product innovation can all result in exciting opportunities but also present challenges. To find out more about how we can help you, visit our Markets page.
Want to learn more about the impact of Brexit? Shiona Davies uses data from the SME Finance Monitor to give an early indication of the impact of Brexit on SMEs.
Hear more about the mortgage market in Sam Burton's blog 'Will Robo-advice kill the intermediary?'.