Protect your savings and mortgage in a no-deal Brexit
The possibility of the UK leaving the EU without a deal is increasing, but what will the impact be on savers and mortgage holders?
Wed, 10/09/2019 – 00:30
Following the referendum, the Bank of England cut the base rate of interest in half to 0.25%, but has since raised it twice, and it now stands at 0.75%.
So far, the Bank has remained tight-lipped on what could happen to rates in the event of a no-deal Brexit, with its official position being that they could go either way.
However, Gertjan Vlieghe, a member of the Bank’s monetary policy committee, has said that in the event of a no-deal, rates could be cut to close to zero.
If there is a smooth Brexit, the Bank says it would expect to resume interest rate rises in order to meet the inflation target of 2%.
Economists also predict an interest rate cut if the UK leaves the EU without a deal. This would be bad news for savers. If the Bank cuts interest rates it is likely providers will respond by lowering their rates too.
Variable rates deals will fall almost immediately, while new fixed rates will also drop, making it even harder to find a savings account that beats inflation.
Mixing fixed-rate and easy-access savings accounts could help guard against falls in the interest rate and give flexibility if it rises.
Anna Bowes, co-founder of Savings Champion, says: “There is no way of knowing what is going to happen to interest rates. Brexit will obviously need to be taken into consideration but there are other factors which can have an influence.
“Savers can hedge their bets by putting some of their money into a fixed-term account to protect it from any shocks, while also leaving some in an easy-access account in case there is an uplift in rates.”
The top rate one-year bond is from Al Rayan Bank at 2.07%, while Gatehouse Bank is offering 1.90% for its fixed bond. Note, both accounts offer an expected profit rate (EPR).
Al Rayan also offers the best interest rate for a two-year bond at 2.32%, while Gatehouse Bank is offering a rate of 2.15%.
The USNewsRank easy-access best buy is Marcus by Goldman Sachs, which offers a rate of 1.45%.
Even if the Bank cuts the interest rate we are unlikely to see much of a change in fixed-term mortgage rates. A price war between lenders means mortgage rates are already rock bottom and unlikely to fall much further.
If the base rate comes down, those on fixed-rate mortgages won’t see any benefit until their term ends.
However, if you are on a standard variable rate or a tracker that is tied to the base rate, you could see your payments fall.
Ray Boulger of mortgage broker John Charcol says a no-deal Brexit will increase the likelihood of the Bank of England cutting interest rates.
He suggests that for those looking to remortgage, it might be worth waiting to see what happens before locking in, but warns of waiting too long and ending up on a costlier standard variable rate.
He says: “The main beneficiaries of a bank rate cut will be the minority of borrowers on variable rates.
“People looking to take out a fixed-rate mortgage won’t see much of a benefit from a fall in the interest rate as it has already been factored into pricing already.”
“Another option is to take out a variable rate tracker mortgage, although borrowers could see their payments go up if the base rate rises at a later date.”
Al Rayan Fixed Term Deposit
If you are happy to lock away your cash, you might want to try Al Rayan’s one-year fixed rate bond.
This pays 2.07% to savers with an initial deposit of £1,000, but your money cannot be accessed for at least one year. This is a sharia compliant account and therefore the rate is an expected profit rate (EPR).