BREXIT: How does it affect you?
8th July 2016
At 6am on Monday 27th June it was declared that the UK was to leave the European Union. Despite the vote being finalised, Britain’s exit will not take immediate effect, and it can’t be stressed enough in saying that we are still a member of the European Union. It will, most likely, take some years for us to be officially ‘out’, however, this news has proved to be a catalyst in a series of extraordinary, yet significant, events that have unfolded in the past couple of weeks.
The country was in turmoil when they saw the pound’s value fall to the lowest it’s been since 1985. Sterling’s plunge led to £120 billion leaking from the value of Britain’s largest 100 businesses (FTSE 100). A staggering figure. However, they climbed back up in order to achieve the best week they have had in 8 years. British Domestic businesses (FTSE 250) were also hit hard, counting 11.4 per cent in losses on average, but weren’t so successful in rescuing themselves. All in all, the overall losses weren’t catastrophic. On the other hand, Barclays, Lloyds and Royal Bank of Scotland were just a selection of banks that were hit hard by BREXIT, with their shares dropping by around 20 per cent. Similarly, housebuilders suffered terribly, with Travis Perkins down 43 per cent and Taylor Wimpey down 32 per cent.
So, the real question is how will this affect you? What is the affect of BREXIT on pensions, savings, house-prices, mortgages and all the other everyday expenses that you encounter? What does BREXIT really mean for your money? Now that the dust has settled, and scaremongering aside, it’s time to talk facts.
Firstly, pensions and savings. Pensions and savings are very similar in the way that they are both invested in shares or gilts (government bonds), so, if the stock market falls, your money could be affected. Whether it is affected positively or negatively we don’t know. But, think of it this way: if share prices fall, your pension/savings account could purchase a higher number of shares. Then, if those shares increase in value, you will have made money. However, if the share prices drop, then your invested money is going to fall in value also. Cash savers, on the other hand are much safer as the government protects your cash up to £75,000 in a single account. So you cash savers can breathe easy – so long as you’re not planning to use your savings outside of the UK anytime soon.
Due to the pound decreasing in value, people hoping to receive their pensions abroad could be in for a hard time. The value of the pound dropped from €1.30 before the referendum down to €1.17 afterwards. This means £1000 will now only buy you €1170 rather than €1300, a quantitative loss. So what do you do? Well, the market generally tends to go through a bad period after an occurrence like this due to the lack of confidence. The £1000 that you have in your hand is still physically £1000. It hasn’t changed. Although our currency is worth approximately 10 per cent less than it was a few weeks ago it has only lost value in theory. Your ‘loss’ only stops becoming theoretical when you either sell an asset(s) or change currency, it is then when it will become a ‘real’ loss.
Second up, house-prices. Zoopla, an online property company, has predicted that the average price of houses in the UK – £279,000 – could drop by up to £53,000. However, these figures aren’t fact and it is impossible to predict what is going to happen to house-prices in the near future. Despite this, if you’re looking for a ‘quick flip’ (buying and selling quickly for profit) it could be a bit of a gamble, however, if you’re investing long-term, the negative effects of BREXIT may only linger for two or three years. Therefore, if you are considering a long-term property investment then it is probably still a good choice.
Homeowners looking for mortgages are to be in for treat with prices currently sitting at the lowest point they have been in more than 50 years. The ‘leave’ vote has led to interest rates staying lower for longer so lenders may end up ‘going to war’ on mortgage rates. Two-year fixed rates are available below 1 per cent, five-year fixed rates from below 2 per cent and even 10-year fixes can be had below 3 per cent. And while it’s impossible to predict where this is going to go due to the current state of the economy, there is one thing we can say for certain and that is that mortgage rates are as low as they’ve ever been.
In this chaotic post-referendum world, there are many questions but very few concrete answers about the impact of the BREXIT vote on our personal finances. If you are in need of any further information and/or guidance on the above, please don’t hesitate to call us to discuss in more detail.
References: BBC News, Sky News, Thisismoney.co.uk, The Guardian and The Sunday Times.