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How is Brexit affecting rates and house prices?

Couple enjoying retirement; Walking in the countryside

With the shock waves of the Brexit vote starting to settle a mere month after the historic result, we take a look at how the British vote to ‘Leave’ could affect over-55s in the UK.

Interest rates

Despite the Bank of England announcing that rates will hold at the current record low of 0.5 per cent, but if the economy does not pick up then experts are predicting that the base rate will be cut to 0.25 per cent.

Why? The issue is largely cyclical and comes down to the public’s fear of spending their money due worries about the future. This period of not spending and being more cautious financially could trigger another fall into a recession. A rate cut, therefore, would encourage the country (including big businesses) to continue spending their money as they were doing beforehand, rather than cautiously holding it in the bank.

The looming prospect of interest rate reductions could hit retirees hardest if they are reliant on a return on savings. It would also be disadvantageous to prospective retirees hoping to get a good rate on their retirement income.

It has been predicted that people in need of an income from their pension fund in the coming months may seek out more flexible options such as a fixed-term annuity to see them through the next couple of years, in the hope rates will start to rise again; at which point they could lock into a better lifetime rate.

Property prices

Average asking prices for homes across England and Wales fell by 0.9 per cent or £2,647 last month in the wake of the Brexit vote. Figures released by RightMove show the average price tag of a home on the site has slipped to £307,824 in a month*.

Meanwhile, the London housing market has reportedly taken a particularly hard hit following the UK’s vote to leave the EU, which prompted a wave of discounts as anxious homeowners dropped their asking prices.

According to the property research firm LondRes, the number of cuts to asking prices increased by 163 per cent in the twelve days after the referendum, compared to the twelve days leading up to it**.

But it appears the price discounts have as yet failed to encourage people to buy, with completions down in London’s thirty most central postal districts by a huge 43 per cent when compared to one year earlier.

The figures suggest that buyers have become more determined to secure low price deals that will protect them from future price falls, should there be further blows to the economy during the potentially volatile months and years ahead.

Record numbers for equity release

Equity Release has seen rapid growth in the market with a record amount released last year (£1.6 billion). The Equity Release Council also revealed that more wealth was unlocked from properties in the first three months of this year (£393.3m) than any three months on record.

Sales and demand saw an unprecedented boost after the welcomed entrance of the high street name Legal & General into the sector in the early months of last year.

This addition was followed by the new lender ‘One Family’ launching its first plans in early 2016, including the lowest rates ever seen on an Equity Release Council approved plan.

But could the Brexit result impact on this rapid growth and demand? Initially, signs point to no. In fact, it is thought that with Brexit-fuelled market uncertainty potentially putting investments on shaky ground, the certainty of lifetime mortgages could see an even greater demand.

The impact of Brexit on savings returns and investments could further drive the surge in equity release queries, as homeowners seek other methods of raising cash from their self-generated money rather than raiding poor-performing investments or look outwards for funding.

With equity release, once a plan has been agreed the rate offered is secured for the life of the plan (unless the homeowner selects one of the new variable rate plans on offer).

This rate-lock naturally protects the homeowner from any fluctuations in the market, which could be particularly appealing given the forecasted volatility while the government secure our new agreements following the Brexit result.

* 18/07/16
**Independent 18/07/16