What Will Brexit Mean For You
The UK has voted to leave the European Union, in a landmark referendum result – and many have questions and worries over their personal finances following the outcome. Money Saving Expert’s Martin Lewis answers some of your most pressing questions and we share how Profit Squirrel is giving everyone the opportunity to improve their financial position significantly.
1. What's going to happen to interest rates
A. That's a very difficult one to call. There are at least two competing pressures here.
Normally, when the pound drops, you would increase interest rates. This makes people from elsewhere want to buy pounds as they can get a better return, thus strengthening the rate. This is especially important as a weak pound makes imports more expensive, which increases inflation.
Yet there are also worries about an economic downturn. There are two main possible reasons this could happen. Firstly because of sentiment change now, and second because of changing trade relationships when we leave the EU. It is far too early to know if either of these will happen though.
To try to prevent it, you want economic stimulus, and that means cutting interest rates – as then it encourages people to spend rather than save. And while it seems with UK base rates stuck at 0.5% there's not much room to cut, some countries have even gone as far as negative interest rates.
2.What will happen to mortgage rates?
A. Much of this relates to the interest rate question above, as mortgage rates loosely follow those. However, the rate at which fixes are set is also linked to the markets' long-term view of interest rates.The markets aren't keen on Brexit, as we've seen from big falls in various indices around the world. So there may be (again a guess – no guarantee) some downward pressure, in other words meaning mortgages could get cheaper. This is balanced though by the fact that UK banks will want to keep strong capital reserves in such an uncertain time, which will discourage lending.
Overall, I suspect little change for now – and it's worth remembering UK mortgage rates are at all-time lows anyway.
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3. How will this affect 'mortgage prisoners' due to the EU Mortgage Credit Directive?
A. I've been campaigning about the EU Mortage Credit Directive's impact on remortgaging. Sensible rules have been introduced to ensure that first-timers can afford their mortgages, but the same rules are also being applied to those just switching their mortgage deal.
This has led to the farce of some people being told "you can't afford a cheaper mortgage".
When challenged on this, the EU tells me that this is due to how our regulator the Financial Conduct Authority (FCA) interprets the directive, while the FCA says it has no choice and that it's an EU rule.
The UK will no longer be bound by this directive once we leave in a couple of years. Until then, the question is: can the FCA reinterpret? Watch this space.
4. What is going to happen to house prices – is it worth me completing my purchase?
A. House prices are a funny thing. In most areas we worry about price rises, but for homes many celebrate it. And in some ways that’s right – increased prices can lower your loan to value, which means a cheaper mortgage is possible, plus if you sell the property and aren’t moving to a bigger one you can cash in. Yet for others rising house prices stop them ever owning a property.
As for what will happen due to Brexit, that's anyone's guess. It’s possible there will be market uncertainty, and people may wait and stop transacting, which will lower demand and therefore prices. Plus if a lack of confidence reduces the overseas buyers (many from outside the EU) that lack of demand could trickle down too.
However we still have an issue with undersupply in many parts of the country which is a powerful factor in keeping prices at current high levels.
A number of people have been asking if they should complete on the house they’re in the process of buying. If it's the house that's right for you, it's within your budget and you've got a decent mortgage that you can afford, then I think the best human decision, if not financial, is to carry on and go for it.
The most important thing is to make a good decision based on the factors you know, but doing that doesn’t guarantee you a good outcome.
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5. Will I still be able to get a Help to Buy ISA now?
A.Yes. The Help to Buy ISA is a UK Government scheme, not an EU scheme. It allows first-time buyers to save for a deposit on a home and the state adds 25% on top, up to £3,000
While a new Government could change its mind, this was a Conservative policy, so it would seem a strange move. In the unlikely event it did change its mind, it would likely close it to new entrants rather than cut the benefit to those who already have one (though again, nothing is guaranteed).
6. What about Lifetime ISAs?
A. These are due to launch next April. This is a George Osborne policy to give a 25% boost to first-time home buyers and retirement savings.While it's likely to continue, as it's not launched yet, there is a chance a new Government could scrap it before it starts as a change of policy direction. My guess though is it'll stay.
7. Will savings rates drop?
A. It's tough to see them get much lower – already the top standard easy access deal is 1.27%. Yet again though this one does depend on UK interest rate policy.
8. Are my savings safe?
A. This is a time of uncertainty and change, so I'm not surprised to have had a lot of people asking that question. UK banks and building societies are required to have much bigger capital reserves now than they did in 2007. Plus there a variety of new measures in place to prevent savings collapse (for example, they'd try to move the savings to another bank rather than allow it to collapse and pay out).
One cause for concern for some of you is the fact that the underlying savings safety guarantee is an EU rule. However, the EU only dictates the amount of deposit protection that we have.
The deposit protection scheme itself is UK-mandated, and is run by the UK's Financial Services Compensation Scheme, meaning that savings up to £75,000 with a bank or building society (or banking group) are protected and will remain so, at least for the next couple of years while the negotiations to leave are ongoing.
In fact, the protection UK accounts get recently dropped from £85,000 to £75,000 because of fluctuations in the euro's value, even though many regulators here didn't want it to. So it could be a positive that this protection can be at a set level in future that isn't dependent on the value of currencies.
The UK has voted to leave the European Union, in a landmark referendum result
9. Has my private pension lost money due to the drop in the FTSE?
A. If your pension is invested in stocks and shares and you were to cash it in today, yes – you'd have lost money compared with yesterday. Yet if your pension isn't being cashed in today, it's just a paper loss. The markets move every day (though today's move is a lot bigger than most days). It's only when you crystallise that by buying or selling that there is an actual impact. So the risk in an investment is the same as always. You hope it moves up, you risk it goes down, it changes every day and the timing of when you do the transaction is what counts.The only thing I can guarantee you about the future of shares is they will either go up, go down, or stay the same.
10. Should I be buying my holiday money – euros, dollars, etc – now?
A. I'm afraid I can't answer that without a crystal ball. There is huge volatility on the currency markets and they could move any way.
If you're worried, one option is to buy from a firm that allows you to order but with a cancellation right. So you lock in today's rate, but if it improves you cancel and buy elsewhere.
Or you could go for a top overseas spending card that gives you perfect exchange rates on the day you spend.
11. Will I still be able to use my EHIC card?
A. The European Health Insurance Card (EHIC) is an agreement between countries in the EU and European Economic Area. The EHIC gets you free or discounted medical care in EU member countries but also in Iceland, Norway and Liechtenstein, plus Switzerland, which isn’t in either.
The vote may affect this going forward but again, nothing is likely to happen for at least the next two years. For now, travellers can and should carry on using the scheme as normal.
Remember the EHIC card is free and you should never pay for it. Plus, if you've got one, check whether it's still in date.
12. My passport says 'European Union' on the front – do I need a new one?
A. Although your passport says European Union on the front that's just a branding thing – it's actually issued by the UK Government, so it's a UK passport.
What the vote result may mean for travel within the European Union is one of the bigger unknowns that will be part of negotiations, but until we leave the EU (which will not be for at least another two years) things should be mostly unaffected.
13. Will I still be able to claim for flight delays?
A. If you're delayed for more than three hours on an EU-regulated flight, where it's the airline's fault, EU regulation 261/2004 allows you to get fixed compensation of at least €250 per person (when we checked, this was about £200, but this figure is likely to change)
However, as this regulation comes from the EU, it's likely that when Brexit is rubber-stamped this will stop. For that NOT to happen, the UK would need to launch its own flight delay legislation.
It's important to note though that until we leave the EU, there will be no change. The Civil Aviation Authority has confirmed there will be no immediate change and says it will be working with the Department for Transport in the coming months as Brexit discussions progress.
Overall though, the best information is if you have had a delayed flight, make your complaint sooner rather than later.
14. What about mobile roaming in the EU?
A. The EU is set to ban roaming fees within the EU from June 2017, yet when we leave Europe we will be outside of this. The UK Government could legislate on roaming but it doesn't currently do that for those roaming outside the EU, so why would it do it for roaming within? Yet of course, it may be politically expedient for it to do so, as a 'see, you didn't miss out due to Brexit' policy. Only time will tell.
15. What will happen to the state pension?
A. There was much talk from politicians in the EU referendum campaign about the possible impact on the state pension. It wasn't about the pension itself, but rather a prediction that there would be a huge economic downturn and the state pension would need to be cut to pay for it. So for now the state pension stays the same. Whether there'll be any change to it is a question of policy for future Governments, but there's nothing definite planned currently.
16. Will there be changes to my benefits?
A. The benefits system in the UK is almost entirely governed by the UK Parliament, not Europe (with some exceptions on benefits for those who aren't UK citizens).
So benefits are unlikely to be directly impacted by the vote to leave the EU. However, it is of course possible that a new Government will have a different stance on benefits and make changes when it comes in.
17. Will my consumer rights be affected?
A. While many consumer rights are based on EU directives, they are actually enshrined in UK law. So unless the UK Government decides to change the law, these rights will stay the same.
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