As the clock ticks down to exit day, we still don’t really know what’s going to happen, and at this stage it still depends on whether the Prime Minister can get his Brexit deal, or any deal, through Parliament. With just days to go, things are continuing to look uncertain for businesses both in the UK and across the continent. Will there be another delay – and how long is any delay likely to be?
In an age where genuinely balanced and good-natured debate seems to have been lost, we’ll try and cut through the media storm and look at what Brexit might actually mean for the financial markets and the building society sector in particular.
Brexit and financial services
Although we operate within a critical sector for the UK economy, Brexit is not expected to impact many building societies directly as most commercial activity takes place solely within the domestic market. However, while we may not see a direct impact, external shocks or disruption is likely to have a knock-on effect on the sector as a whole. For example, a disorderly no deal Brexit seems likely to significantly impact the mortgage and housing markets – perhaps through a sudden devaluation in the Pound or even a brief period of recession, if some reports are to be believed.
Interest rates and currency fluctuations
Rising prices also affect our business – a sharp fall in Sterling that leads to prices at the petrol pumps going up by 3 or 4 pence overnight will cost the average family more than £200 extra per year, putting further pressure on cash-strapped families who might already be struggling with mortgage repayments or other debts. Currently the mortgage market is looking relatively stable while borrowers cautiously await definitive news on Brexit. We have seen a marked increase in both the number of first time buyers and later life borrowers over recent months – two groups who appear to be hedging their bets ahead of the UK’s departure. Last year the Bank of England governor Mark Carney warned that a no-deal Brexit could cause house prices to fall by a third, while a smooth and orderly transition is likely to create a small uplift in prices.
It remains to be seen whether rubber-stamping a deal before 31 October can really provide the certainty and stability businesses and consumers are craving. Indeed, there’s no guarantee that a deal will somehow make things better – even without Brexit, low productivity and slow wage growth continue to plague the economy and trade negotiations with the EU might prove to be even trickier than the withdrawal deal.
In any case we continue to monitor the political situation closely and prepare for all outcomes. Through our manual underwriting process we can understand a borrower’s individual requirements better than an automated system to ensure that all of our mortgages are affordable. We also undertake rigorous stress testing to ensure that both borrowers and our business, are protected in the event of a sudden increase in interest rates or an economic shock resulting from a disorderly departure from the EU.
Whatever happens, our departure from the EU is a globally significant moment, carrying with it both huge risks and perhaps huge opportunities – and until the moment we have actually left, only time will tell how it will affect people’s lives in the country at large.