Martin's Brexit Q&A: Mortgages, savings, the pound - what it means for you

What a monumental decision. This will be a very different Britain. And regardless of how you voted, we need to work together to ensure it's for the better. There's a risk there will be financial pain to get there, but if so, the country has chosen it's a price worth paying.

Many of you have been sending me questions via my Twitter and Facebook feeds with queries and concerns about the personal finance impact, so I want to bash out some answers as best I can.

This isn't easy. Brexit seems to have caused political anarchy. We have huge Labour and Tory splits. Some people are pushing to renege on the referendum by calling for a second one. And the union could potentially split. From this point on though, I'm going to assume that Brexit will happen as was voted for.

Part I: What's going to change and when will it happen?

Before I get into the nitty-gritty, it's worth looking at the big picture. Brexit is a sizeable upheaval. Most of it won't happen immediately, so it's important to understand the timeline. I split the changes into three.

1. Sentiment & market changes – already started, lasting a few years. These are changes caused by market movements and sentiment. That's because the fact we're leaving the EU will change some of the financial decisions people make. So anything governed by stock market, currency values and, to a lesser extent, interest rates could see change straightaway.
   
   Yet it isn't just City sentiment either. Some people have told me their home-buying chain's been broken by buyers pulling out, others that their income's hit as companies are putting projects on hold, and yet more just retrenching from everyday transactions. I've even been asked: "I'm in the middle of changing bank account, should I stop?"
   
   It isn't to argue these changes aren't or shouldn't be real. After all, they're not based on anything tangible, rather how people feel. Yet it is possible to talk ourselves into recession – as if people act in a way that it's happening, it becomes a self-fulfilling prophecy.
   

   The most important thing to do is keep calm, carry on and act normal. If we can manage to do that collectively, the impact of this sentiment change will be minimal.

   Of course things like a drop in the pound do have a real impact – as has been much covered, it will impact holiday costs, petrol prices and other supplies. Plus it makes imports more expensive, though it does help exporters as it reduces their prices.
   
   However, it's worth remembering the pound rate moves every day. The fact it's dropped doesn't mean it'll stay there – it could rise, or, for that matter, fall further. Much of the coverage has acted as if this is a done deal, rather than an ongoing continuum of price change, which is more accurate.

   While it may sound strange, last week we were uncertain over whether things would be uncertain. At least now we know they will be. And as we had to in the financial crisis of 2007, people will adapt and get used to that uncertainty. At the moment, some of the reaction, especially for those who voted remain, is just shock.

   Warning: Let's not talk ourselves into a recession – here's a two-minute clip from Radio 5 Live on Mon 27 Jun, but better to listen to it in context of the whole programme.
   

2. New Government changes – starts September 2016.

   Update Tuesday 12 July: With the uncontested Conservative leadership contest, this has happened much more quickly than expected, with Theresa May becoming Prime Minister on 13 July 2016.

   David Cameron has resigned as Prime Minister. We will almost certainly have a new Conservative Government in place by September. There is even an outside chance that a general election will be called, though that is unlikely, as it would require a two thirds majority of the House of Commons to vote for it.
   
   A new Government and Chancellor may have different priorities, though if it's Conservative it'll likely be on roughly the same track. It could change benefits policy for example, as there have been disputes within the Tory party over that. It could even see the bedroom tax repealed (that's speculation, but we know it hasn't worked and a clean start makes a U-turn easier).
   
   We'll likely have a different course for budgets and legislation too. The main Conservative party divisions have not been over personal finance, however, so it's unlikely we'll see too much unplanned, substantial policy change in this area.

3. Rule, trade and immigration changes – starts September 2018 at the earliest. The UK has not left the EU. For that to happen, the Government almost certainly has to enact Article 50 of the Treaty of Lisbon. David Cameron has said he won't do this, so it'll be for the new Prime Minister in September – and even when that happens, while there is a maximum two year formal negotiating period, many expect in practice it may last a lot longer, so we're likely talking late 2018 at the earliest.
   
   That means all existing rules and regulations that derive from our membership of the European Union – whether relating to mobile roaming, EHICs, the Mortgage Credit Directive or flight delays – currently remain unchanged due to the vote (though there may be other reasons for change). And they're likely to remain that way for two years and quite possibly longer.
   
   This is also the timing for the change of our trade relationship with the EU. And it's very important to understand this...
   
   It's the trade changes that most independent economists were predicting would be the big hit on the UK economy – they haven't happened yet – and won't for a while.
   
   And of course the predictions may be wrong; there are some economists who argue it will be beneficial. It's right for me to say at this point that I am one of those people who said the odds were it would have a negative impact on the economy (see my how to vote blog).
   
   Yet we won't know who's right for a good while, and regardless of how you voted, we need to work together to try to ensure problems don't occur. I would be delighted to be proved overcautious.
   
   Of course, the knowledge that the rules will change may trigger some moves earlier. For example, companies have mooted leaving the UK as it may no longer access EU markets – our national aim now must be to try to attract others in to make up for it.

Part II: Your questions answered

On the morning of the Brexit result, we initially saw huge drops in the pound and world stock markets – at the time of writing this update, on 28 June, there has been some recovery.

Where we go in future does, to an extent, require a crystal ball. I've written a plain-speaking attempt to answer your questions below, with a mix of knowledge and guesswork.

I've done it as so many are asking, but please understand at this point that nothing is 100% certain and all is subject to change – so see it as an indication, not cast-iron fact.

Q. What's going to happen to interest rates?

A. That's a very difficult one to call. There are at least two competing pressures here.

Normally, when the pound drops, you would increase the UK base rate. This makes people want to buy pounds with foreign currencies as they can get a better return, thus strengthening the rate. This is especially important as a weak pound makes imports more expensive, which increases inflation.

Yet there are also worries about an economic downturn. There are two main possible risks that this could happen. Firstly because of sentiment change now, and later on because of changing trade relationships when we leave the EU.

To try to prevent it, you want economic stimulus, and that means cutting interest rates – as then it encourages people to spend rather than save. And while it seems with UK base rates stuck at 0.5% there's not much room to cut, some countries have even gone as far as negative interest rates.

Overall my suspicion (and this is pure guesswork) is that interest rates will remain roughly similar to as they are now, or perhaps be cut a touch if things go wrong. But this is an ever-changing scenario.

Q. What will happen to mortgage rates?

A. This is obviously strongly linked to the interest rate question above, but there are more elements to it than that.

- Will fixes get cheaper? The rate at which fixes are set is based on complex 'long term City swap rates'. And the markets' Brexit gloom has pushed those down, so fixed rates could (there's a lot of crystal-ball gazing here) trickle down further. This is balanced though by the fact that UK banks will want to keep strong capital reserves in such an uncertain time, which will discourage lending.

- What about variable rates? That depends mostly on the UK base rate as explained above; my guess is limited movement for now.

Overall, though, it's worth remembering mortgage rates are at historic lows already, with the cheapest two-year fix dropping under 1% for the first time (use the Mortgage Best-Buy Comparison to explore them).

If you can slash £1,000s off your costs (and that is not an exaggeration for many on standard variable rates), and get peace of mind that you can afford it (and if you're worried about uncertainty, go for a longer fix), then do it. Yes there's a chance it could get even cheaper, but if you're bagging something that's easily affordable, that certainty and safety has a value too. Playing the market is never guaranteed. For more help, see the Cheap Remortgage guide.

Q. How will this affect 'mortgage prisoners' due to the EU Mortgage Credit Directive?

A. I've been campaigning about the EU Mortgage Credit Directive's impact on remortgaging. Sensible rules have been introduced to ensure that first-timers can afford their mortgages, but the same rules are also being applied to those just switching their mortgage deal.

This has led to the farce of some people being told "you can't afford a cheaper mortgage".

When challenged on this, the EU tells me that this is due to how our regulator the Financial Conduct Authority (FCA) interprets the directive, while the FCA says it has no choice and that it's an EU rule.

I've met George Osborne on it and had some limited success (see 'I was a mortgage prisoner but escaped thanks to MSE') but there is a long way to go.

The UK will no longer be bound by this directive once we leave in a couple of years. Until then, the question is: can the FCA reinterpret? Watch this space.

Q. What's going to happen to house prices – is it worth me completing my purchase?

A. House prices are a funny thing. In most areas we worry about price rises, but for homes many celebrate it. And in some ways that's right – increased prices can lower your loan to value, which means a cheaper mortgage is possible. Plus if you sell the property and aren't moving to a bigger one, you can cash in. Yet for others, rising house prices stop them ever owning a property.

As for what'll happen due to Brexit, that's anyone's guess. It's possible there will be market uncertainty, and certainly initial reports show a few people pulling out of deals, which will lower demand and could impact prices – yet that could just be initial shock and within a few weeks it may settle down.

However, we still have an issue with undersupply in many parts of the country, which is a powerful factor in keeping prices at current high levels. See our Free House Price Valuations guide for more.

A number of people have been asking if they should complete on the house they're in the process of buying. If it's the house that's right for you, it's within your budget and you've a decent mortgage that you can afford, then I think the best human decision, if not financial, is to carry on and go for it.

The most important thing is to make a good decision based on the factors you know, but doing that doesn't guarantee you a good outcome. For more on what I mean by that, see my How To Make Good Financial Decisions guide.

Q. Will I still be able to get a Help to Buy ISA?

A. Yes. The Help to Buy ISA is a UK Government savings scheme, not an EU scheme. It allows first-time buyers to save for a mortgage deposit with the state adding 25% on top, up to £3,000 (see our guide on the top Help to Buy ISAs available).

While a new Government could change its mind, this was a Conservative policy, so it would seem a strange move. In the unlikely event it did change its mind, it would likely close it to new entrants, rather than cut the benefit to those who already have one (though again, nothing's guaranteed).

Q. What about Lifetime ISAs?

A. These savings and investment schemes are due to launch next April. This is a George Osborne policy to give a 25% boost to first-time home buyers and retirement savings (see how in our Lifetime ISAs guide). While it's likely to continue, as it's not launched yet, there is a chance a new Government could scrap it before it starts, as a change of policy direction. My guess is it'll stay, however.

Q. Will savings rates drop?

A. It's tough to see them get much lower – already the top standard easy access deal is 1.27% (see Top Savings for how to get 3%). Yet again, though, this one does depend on UK interest rate policy.

Q. Are my savings safe?

A. This is a time of uncertainty and change, so I'm not surprised to have had a lot of people asking that question. UK banks and building societies are required to have much bigger capital reserves now than they did in 2007. Plus there are a variety of new measures in place to prevent savings collapse (for example, they'd try to move the savings to another bank rather than allow it to collapse and pay out).

One cause for concern for some of you is the fact that the underlying savings safety guarantee is an EU rule. However, the EU only dictates the amount of deposit protection we have.

The deposit protection scheme itself is UK-mandated, and is run by the UK's Financial Services Compensation Scheme, meaning that savings up to £75,000 with a bank or building society (or banking group) are protected and will remain so, at least for the next couple of years while negotiations to leave are ongoing.

In fact, the protection UK accounts get recently dropped from £85,000 to £75,000 because of fluctuations in the euro's value, even though many regulators here didn't want it to. So it could be a positive that this protection can be at a set level in future that isn't dependent on the value of currencies. More info on how the protections work in Are My Savings Safe?

Q. My savings are with an overseas-protected bank, eg, RCI or Fidor – what's the situation there?

A. As we've always warned, a few savings accounts aren't fully UK-regulated. In the unlikely event the bank providing such an account went bust, your €100,000 protection (equiv to the £75,000 on the UK scheme) comes from a foreign government, eg, RCI is France, Fidor is German. So you should only do this if you're happy with the fact that it'd bail you out.

There is no change in that, until at least the point when we actually leave the EU in a couple of years' time – what happens after that is one of those things that will need negotiating.

Q. My savings are with Santander, that's Spanish; is that a worry?

A. Don't let the question confuse you. Most banks operating in the UK, even if their parent company is elsewhere, are fully UK-regulated banks.

The most famous one is Santander (and many MoneySavers have it due to the best-buy Santander 123). Yet this is a fully-regulated UK bank, and a big one at that: its funds are ring-fenced from the Spanish parent group. So don't think of it as Spanish.

Q. Is this going to affect the rate at which I can get credit card or personal loans?

A. I think that’s unlikely. These rates are far less tightly linked to interest rates than mortgages. One consideration would be if the banks were concerned to keep very high capital ratios so became more cautious about lending. Yet overall I don’t see Brexit playing a big part in this (other changes of course, as always can change these things).

Certainly right now the credit card market for shifting debts is offering record deals, with up to 40 months 0% available – so if you're paying debt on existing credit or store cards, just for safety it’s worth sorting now. See our top balance transfers guide for all details. For more on borrowing best buys check out the cards and loans section of our site.

Q. Has my private pension lost money due to the drop in the FTSE and other investments?

A. If your pension is invested in stocks and shares and you were to cash it in today, yes – you'd have lost money compared with before the referendum.

Although if your pension isn't being cashed in today, it's just a paper loss. The markets move every day (though current moves are a lot bigger than most days). It's only when you crystallise that by buying or selling that there is an actual impact.

So the risk in an investment is the same as always. You hope it moves up, you risk it going down, it changes every day and the timing of when you do the transaction is what counts.

The only thing I can guarantee you about the future of shares is they will go up, go down, or stay the same.

Q. As the market's dropped, is now a buying opportunity for shares, or my shares ISA?

A. Ask me in a year or two's time when I have the benefit of hindsight. No one can predict the markets. The rule 'what goes down, must go up' simply isn't true. It may well turn out to be a good time; equally things could fall further. And if you're investing in individual shares, they're even more volatile than the rest of the markets.

Q. Should I be buying my holiday money – euros, dollars, etc – now?

A. I'm afraid I can't answer that without a crystal ball. There is huge volatility on the currency markets and they could move any way.

It's worth putting the current rates (at the time of writing) in a bit of perspective though. Against the euro the pound was nearing €1.30 before the result and is now around the €1.20 mark. This time last summer it bought €1.43 at its peak. However, the summer before it was €1.20 and the year before that €1.15 – so this isn’t a historical anomaly.

Part of that is because the euro itself has also weakened due to the Brexit vote, so the relative change isn’t as much. The pound has faced a much bigger drop against the dollar, where it's at an over 30 year low, hanging around the £1 buys roughly $1.35 mark.

If you're worried, one option is to buy from a firm that allows you to order but with a cancellation right. So you lock in today's rate, but if it improves you cancel and buy elsewhere (see my blog on Buying euros/dollars before the referendum, which is still relevant now as it's about protecting yourself from volatility).

Or you could go for a top overseas spending card that gives you perfect exchange rates on the day you spend. More help is available in our 16 cheapest ways to get travel money guide.

Q. My friend told me to wait to buy my euros as they'll rise again, is it worth it?

A. Be wary of friends giving you definitive facts about the markets – be it shares, house prices or the pound. These things move, there are no rules.

Q. Will I still be able to use my EHIC?

A. The European Health Insurance Card (EHIC) is an agreement between countries in the EU and European Economic Area. The EHIC gets you free or discounted medical care in EU member countries but also in Iceland, Norway and Liechtenstein, plus Switzerland, which isn't in either the EU and European Economic Area.

The vote may affect this in future but again, nothing is likely to happen for at least the next two years. For now travellers can and should carry on using the scheme as normal.

Remember the EHIC is free and you should never pay for it. Plus if you've got one, check whether it's still in date. Full help is available in our Free EHIC guide.

Q. My passport says 'European Union' on the front – do I need a new one?

A. Although your passport says European Union on the front that's just a branding thing – it's actually issued by the UK Government, so it's a UK passport.

What the vote result may mean for travel within the European Union is one of the bigger unknowns that will be part of negotiations, but until we leave the EU (which will not be for at least another two years) things should be mostly unaffected.

Q. Will I still be able to claim for flight delays?

A. If you're delayed for more than three hours on an EU-regulated flight, where it's the airline's fault, EU regulation 261/2004 allows you to get fixed compensation of at least €250 per person (when we checked, this was about £200, but this figure's likely to change).

However, as this regulation comes from the EU, it's likely that when Brexit is rubber-stamped, this will stop. For that NOT to happen, the UK would need to launch its own flight delay legislation.

It's important to note though that until we leave the EU, there will be no change. The Civil Aviation Authority has confirmed there will be no immediate change and says it will be working with the Department for Transport in the coming months as Brexit discussions progress.

But overall the best information is if you have had a delayed flight, make your complaint sooner rather than later. See our Flight Delay Compensation guide for full help and a free tool to do it.

Q. What about mobile roaming in the EU?

A. The EU is set to ban roaming fees within the EU from June 2017, yet when we leave Europe we will be outside of this. The UK Government could legislate on roaming but it doesn't currently do that for those roaming outside the EU, so why would it do it for roaming within? Although, of course, it may be politically expedient for it to do so, as a 'see, you didn't miss out due to Brexit' policy. Only time will tell.

Q. I've got a European travel insurance policy – will that change?

A. There shouldn't be any change. Europe travel insurance policies are based on geography, not EU politics. Some actually even cover some North African countries around the Mediterranean basin.

When we do leave the EU we may see some mild policy changes, due to changes in 'actuarial risk' (especially if there are no longer EHICs to offset some costs to insurers of medical conditions). Yet of all the concerns, this one isn't a big one.

Q. What will happen to the state pension?

A. There was much talk from politicians in the EU referendum campaign about the possible impact on the state pension. It wasn't about the pension itself, but rather a prediction that there would be a huge economic downturn and the state pension would need to be cut to pay for it.

So for now the state pension stays the same. Whether there'll be any change to it is a question of policy for future Governments, but there's nothing definite planned currently.

Q. Will there be changes to my benefits?

A. The benefits system in the UK is almost entirely governed by UK Parliament, not Europe (with some exceptions on benefits for those who aren't UK citizens).

So benefits are unlikely to be directly impacted by the vote to leave the EU. However, it's of course possible that a new Government will have a different stance on benefits and make changes when it comes in.

Q. Will my consumer rights be affected?

A. While many consumer rights are based on EU directives, they're actually enshrined in UK law. So unless the UK Government decides to change the law, these rights will stay the same. It may take some unpicking though.

Q. Will I still be able to play the Euromillions?

A. Not the biggest worry, but you asked, so we've answered. Camelot, which runs the National Lottery, has confirmed that we will still be able to play the Euromillions despite Brexit. Better still, you can save money and not bother!

Q. Will we still be in Eurovision?

A. Not financial, but I couldn't resist answering it. Eurovision is done by the European Broadcasting Union, not the EU, so there's no change there. I mean, come on – they allow Australia and Azerbaijan in.

For wider issues such as migration and sentiment, see my EU In or Out? blog, which takes you through these.

We'll be following developments over the coming weeks and months and will have all the latest in the weekly email.

Martin's initial reaction video:

Martin posted the following short video at 7am on the day of the vote result, with a first reaction to the possible impact on mortgages, house prices, savings, inflation and the pound. It's kept here as public record, though obviously as time moves on it will become ever more out of date.