“Brexit” & the new EU lending rules


How could securing finance be affected in the event of a Brexit?

The latest figures show that mortgage market lending has reached its highest monthly level since 2008. Consequently, the Council of Mortgage Lenders (CML) has predicted that total lending for the year is likely to reach £209bn, which would represent a 3% increase on 2014.

A healthy mortgage market is a clear sign of economic recovery and points to the fact that we are starting to experience an improved labour market as well as positive wage growth versus inflation. However, the economic recovery has been slow and global economic uncertainty around issues such as China’s stock market and the looming in-or-out EU referendum may slow the mortgage market and in turn help keep central bank rates low and mortgage rates competitive.

In spite of an improving economic outlook, the second quarter of the year may see lending volumes fall slightly as a result of the new stamp duty rules and increased regulatory pressure in the form of the “EMCD” (European Mortgage Credit Derivative).

The EMCD applies new regulations for mortgage borrowers with the main focuses being new rules for ‘foreign currency mortgages’ - where the borrowers reside in a different country to that in which the mortgage is being granted, or where the borrower’s income is derived in another currency to that of the mortgage - and consumer buy-to-let mortgages.

Consumer buy-to-let mortgages will have additional rules making it more difficult to access this type of finance if the borrower has ever resided in the property in question or intends to do so one day.

The good news is that the pre-referendum dip is likely to be a modest one with the CML predicting that lending will continue to remain stable for the rest of the year. Furthermore, lenders are likely to be fully focussed on remaining competitive in the current market which is why we can still look forward to enjoying cheap mortgage finance for the foreseeable future. For example, some fixed rate deals are now available for as little as 1.07%!

The potential of a ‘Brexit’ creates a good deal of uncertainty for the money markets, businesses, governments and not least home owners. Many fear leaving the European Union would cause significant sterling depreciation that could lead to higher interest rates. However, I believe our relationship with the EU will continue as we have one of the strongest performing global economies and the influx of capital into the UK could mean that interest rates stay low and the pound would actually strengthen.

However, while low rates mean demand from borrowers is likely to remain high over the next few months, issues with affordability are likely to prevent many people from gaining access to the best possible deal, particularly as the EMCD rules could have a major impact on both borrowers and lenders. That is why there has never been a more relevant time to seek quality, independent advice on the best way to navigate through the likely obstacles.