How will Brexit affect your personal finances?

The new Brexit date is set on October 31. The scenario under which the UK will exit the EU constitutes a major source of uncertainty. UK Prime Minister Boris Johnson previously noted that Britain will leave the European Union even if it does not succeed in reaching an agreement with its former allies. While there is nothing new about the adverse consequences of Brexit for the UK financial sector in general, it is still difficult to predict unequivocally the impact it may have on British people everyday finances. Let us consider the key areas of concern.

• Pensions

Today the value of the UK basic state pension is protected by the government’s triple-lock commitment, which requires the state pension to increase every year by whichever is the highest of the average wage growth, inflation or 2.5%. In case of a no-deal Brexit, it is not guaranteed that state pensioners living in the EU will still benefit from this uprating. What is more, they would probably lose out on the fall of the value of the pound.

Another thing to worry about is the possible increase of the state pension age after Brexit. This may happen as a result of harsh migration restrictions leading to labour shortages.

As far as private pensions are concerned, the investment performance of many pension funds may decrease substantially following the economic downturn post Brexit. This is due to the fact that a large portion of these funds’ assets are concentrated in the British economy. Thus, those who are close to retirement need to review their defined contribution plan very accurately.

• House prices and mortgages

It is forecasted that the UK growth rates would fall dramatically in the event of a no-deal Brexit. That would result in even larger property value drops. According to official figures, house prices are expected to fall by around 10% by the end of the year. This could benefit those willing to invest in property, since prices will probably stabilise in the long run.

The interest rates are expected to remain at a low level in the near future to help encourage growth. Consequently, it is likely that mortgage rates will go down even further. It could be good news for first time buyers, those willing to remortgage and those on a variable rate mortgage. However, it is not unthinkable that the government may also decide to raise interest rates to cope with inflation, which, on the contrary, will lead to higher mortgage rates. In this scenario, given high degree of uncertainty prior to the upcoming exit, it is of crucial importance to evaluate all the possible alternatives and straighten out finances to make the choice of a mortgage plan as secure, favourable and responsive to your personal needs as possible.

• Employment, benefits, billing

If the UK faces an economic downturn after Brexit, unemployment rates will almost certainly go up and wages will not keep up with the cost of inflation. Benefit payments are likely to experience sizeable cuts. As anticipated, household bills will also rise following Brexit. This is due to higher gas and electricity costs as a result of being outside the EU’s Internal Energy Market. The biggest factor affecting fuel prices is the value of the sterling – weaker pound will lead to higher forecourt prices. Thus, it could be a wise decision to secure a stable financial cushion to protect yourself and your family against possible financial woes in the near future.

• Savings and investments

Savers who hold their money in cash are guaranteed to see their savings lose money. Putting much cash into risky stocks and shares could also appear to be a bad idea due to immense market fluctuations following Brexit and a high probability of a large drop in the value of the investments. Another option would be to lock the money in fixed savings rates, though the rates in the lead-up to Brexit are relatively low. While interest rates are expected to go up after the UK leaves the EU, as it was discussed before, any additional savings from higher interest rates would likely be countervailed by increased mortgage rates and household bills.

Britain’s exit from the European Union will go along with the period of financial instability in the UK, resulting in the fall of the value of the pound and causing unrest on the stock market. The value of your investments in the short term could fall, while lower share prices for some may provide attractive investment opportunities. There are good reasons to seek professional advice to make the most efficient use of your financial funds.

Fintuity can provide you with valuable financial advice and explain your mortgage options, alternative pension plans and insurance products. Our team of professional advisers is ready to offer you the most up-to-date solutions on how to protect yourself and your family against the Brexit uncertainty and the adverse effects it may have on your finances, and help to decide on the most suitable investment plans tailored to your individual circumstances, risk appetite and financial goals.