The Bank of England has deliberately remained tight-lipped regarding the potential benefits and downfalls of remaining in the EU as opposed to a Brexit, however the Financial Policy Committee has warned that a vote to leave poses the risk of causing a run on sterling, less availability and higher interest rates for mortgages.
The FPC statement warned the resulting uncertainty could raise interest rates, “which could lead to a further depreciation of sterling and affect the cost and availability of financing for a broad range of UK borrowers.”
It said the pressures had the potential to amplify vulnerabilities for financial stability that already exist. In other words, it highlighted that Britain’s current account deficit (meaning that the value of imports is greater than the value of exports) has relied on investment from foreign investors to help fund this.
A vote to leave the EU may affect investment from overseas, creating uncertainty about whether this deficit would spiral further downwards – the FPC says this is already “high by historical and international standards.”
The former chancellor Alistair Darling said: “This assessment makes it clear our economy would be more vulnerable and less resilient if we vote to leave the EU – leading to higher mortgage rates for families and higher interest rates for Britain’s businesses.”
Virgin Money chief executive Jayne-Anne Gadhia says that a vote to leave the EU would lead to a spiral of inflation, job losses and interest rate hikes that would cause mortgages to become more expensive.
Although, not all market commentators agree that a vote to leave the EU would have such a profound effect on inflation and the mortgage market.
According to Building Societies Association head of policy Paul Broadhead, a Brexit from the European Union is unlikely to hit the UK mortgage market hard. He says: “Irrespective of the response to the EU question by the UK population on 23 June, the housing market in the UK will still be there afterwards.
“Consumers will still need and want to buy homes and building societies will be supplying mortgages. Clearly this market works best in the light of a healthy economy, which is something everyone can agree on.”
A spokesman from the Council of Mortgage Lenders said: “As a relatively small, open economy and a major financial centre, the UK has, and will continue to have, close links with global economies, including those within the EU.”
There is obviously no simple answer to how a Brexit might affect the mortgage and housing markets, although, following the recent action to curb buy to let mortgage lending it is clear that the Bank of England is cautious to avoid the possibility of a repeat of the events of the 2008 credit crunch.
Article By: Bradley George, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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