What would a No deal Brexit mean for your debt and money?
Brexit makes us smaller than what we are in many ways – in trade, in business, in insolvency and in the ability to chase and collect debts.
What is a No deal Brexit?
A no deal Brexit would mean that the UK cutting ties with the European Union overnight, without a transition period.
Theresa May’s government and many others believe this would be a hugely damaging decision and want a more gradual withdrawal.
As we all know, Parliament has failed to approve the government’s Brexit deal, and if nothing else takes its place, then there will be a no deal Brexit on 29 March. So for now, we all can wait and watch how things turn up to 29 March 2019.
It would mean that the UK would follow World Trade Organization terms on trade while attempting to negotiate new trade deals with the EU and other countries across the world.
What Will Happen to House Prices after Brexit?
It is difficult to predict house prices in normal circumstances and predicting what will happen after Brexit is even harder.
The Bank of England has modelled one scenario that sees house prices fall by 30% if the UK leaves the EU without a deal.
Some say the UK remains a stable country, so properties in big cities will still be attractive to overseas buyers – keeping prices from dropping.
In reality, the housing market usually depends on the wider economy. The true impact on the economy will only really be known after the UK leaves the EU.
If people lose their jobs and struggle to pay their mortgages, they may sell.
Others may need to move for work. That could mean prices fall.
The uncertainty has already led some people to delay moving house. There are BTL rental income changes, which can also make it difficult for property owners to hold on to their residential BTL properties. It is expected that property owners may sell their properties in 2020, which can decrease the demand for purchase for further investment, and it can lead to lower property prices in London and property investment hubs of the UK.
How will a no deal Brexit affect your finances?
Here we look at how this might affect savings, business and credit cards in the UK.
Lower interest rates are good for mortgage payers but bad for savers and investors.
The Bank of England is feeling more optimistic about the future, but there is a lot of ambiguity in the financial and debt market.
The MPC of The Bank of England voted unanimously to raise the interest rate by 0.25% last year but we could not find the same unity among our politicians. There is a fear among the public that Britain could face a No-deal Brexit as the EU is currently keeping their stance hard on not allowing further negotiation of Mrs May’s Brexit deal. What could this mean to your finances?
There are key areas of concern for investment, property, pension, availability of labor and doing business in a no-deal Brexit environment.
The Bank of England has already expressed their concerns of uncomfortable high risk if there is no-deal Brexit.
In theory, BOE would be pushed in two opposite directions: on the one hand to increase interest rates in order to defend the currency and avoid a hike in inflation, but on the other to loosen monetary policy and inject fresh stimulus into the economy.
As there are no direct trade agreements outside the EU, there will be an inflationary surge in consumer prices; this could have a negative impact on the performance of homebuilders and homebuyers, retailers and business owners, who are already feeling a pinch of structural change amid the uncertainty.
There would be a negative impact on holiday companies and airlines companies too as it will become more expensive to go abroad.
Fitch, the rating agency, said the household savings ratio (relative to income) was now 4.9%, a historical low. It forecasts that the UK base interest rate will rise gradually to reach 1.25% by the end of 2019.
Brexit uncertainty creates risks of a bigger shock to growth and employment.
Foreign exchange rates
The value of your holiday pound, and the exchange rate you get when you use your credit card to spend abroad, are affected by foreign exchange (forex) fluctuations.
When we use our credit card or debit cards abroad to make purchases, our service provider (a bank or financial institution) applies a foreign currency conversion rate. This rate will be affected by the variations in the value of the GBP, and any volatility in exchange rates.
If the Brexit talks look as though the UK is failing to secure a good deal, sterling may fall again. The Bank of England may have to raise interest rates to protect the pound.
Credit card fees
Until the Brexit deal is finalized, the government in the UK has to comply with EU directives. After Brexit, all existing European law will be incorporated into UK law.
This includes a ban on credit and debit card surcharges and applies to all purchases made within the European Economic Area (EEA). It means airlines cannot add hidden charges for online bookings. There are unlikely to be any changes in the short term.
Savings compensation FSCS
If you have savings or a bank account with a UK bank and that goes into liquidation, you are guaranteed to be compensated by the UK’s Financial Services Compensation Scheme (FSCS).
The compensation limit is 85,000 is equivalent to the 100,000 deposit protection limit in the EU.
The UK will have to adopt similar laws to protect people’s money when there is a No deal Brexit.
How Will Brexit Affect Your Debts?
When we are talking about UK debt recovery laws, EU law has had little impact on it. Debt recovery laws in the UK have remained primarily a matter for our own parliaments. It is unlikely consumers will notice any difference in how their debts are recovered by their creditors if they cannot pay them after Brexit.
That is not to say that Brexit will not have any effect on UK consumers when it comes to them dealing with their debts.
Consumer Credit Law
EU law has had a significant impact on a number of areas of law that relate to personal finance. The first of these is consumer credit law, which is the area of law that covers the agreements we enter when we take credit cards and personal loans. Many of the protections that currently exist for consumers in the UK, particularly in relation to unfair contract terms have their origins in the European Union. These laws, however, are not likely to disappear even after Brexit, as although they came from the European Union, they were introduced into the UK legal systems by Westminster, and so are in fact now UK laws.
What people will lose after Brexit is the ability to take disputes about these issues to the European Court of Justice when they disagree with a decision of a UK court. It is also likely that our consumer credit laws will begin diverging post Brexit from those that apply across the rest of the European Union.
Dealing with Debt Problems for EU and British National
Another area that may be affected by leaving the European Union is an area of law known as cross-border recognition and has in recent years led to an increase in the number of people dealing with their debts whilst working and living abroad. This is because under EU law when a citizen of one member state moves to another member state they can deal with their debts under that legal system. Currently, with the EIC or European Insolvency Regulation, it allows recognition of insolvency proceedings across borders of EU members. This allows Insolvency Practitioners to work in other countries liquidating and collecting assets from insolvent companies and individuals, to aid in offsetting losses a creditor may have in bankruptcy.
For Example, If you did not pay your service invoice in Germany and now live in London, your service provider can issue CCJ to recover the debt in UK courts the same way as any UK based creditor would try to recover their debt.
This happened more often after the credit crunch when people who were burdened with debts discovered that if you were made insolvent in some countries it could last up to 12 years, whereas in the UK it only lasted one year.
Debt Solution laws in UK and EU
Many EU countries also had no provisions in their legal system for UK formal debt solutions like IVA, DRO and Protected trust deed.
For many, the benefits of moving to other countries with more favourable laws were obvious, as they could still work for a couple of years and then return home debt-free.
EU laws on cross border recognition mean this is possible, as the courts in other member states must recognise the laws in the other country and cannot allow the debts to be recovered when people do return home.
It is not clear, but it appears likely that when Britain exits the UK, these cross-border rules will no longer apply for new bankruptcies and personal insolvency solutions.
This is not to say the EU and the UK will enter into no new agreements, but this may not happen immediately. It is also not to say that all mutual recognition of solutions will disappear after Brexit, as there are United Nation rules to fall back on, but not all countries have agreed to these.
Ability to pay
The final area where Brexit may affect consumer debt in the UK is in relation to people’s ability to pay. Some economists are already predicting that households will struggle after we leave as interest rates will increase, unemployment will rise and prices will go up. This means household budgets will be placed under greater pressure.
Other economists are predicting that Britain will flourish and the UK economy will grow, meaning lower unemployment and higher wages.
A point to remember here is what the American economist Edgar Fielder said, Ask five economists and you’ll get five different answers.
However, it is probably prudent, as Brexit looms, for people to begin being cautious. It’s almost certain that in a couple of years time British consumers will have different laws protecting them from those that currently apply across the EU and not all countries may continue to recognize our solutions, or us theirs.
That was everything about a No Deal Brexit from our experts. We covered various factors that could affect your finances and the way you receive your financial services in the future. We hope that you found it helpful and could decipher a little about your finances from it.
Our office offers all types of debt solutions and we have a strategic partnership with Insolvency Practitioners for formal debt solutions.
Rajnish Tyagi is an experienced and Cert DR qualified debt advisor at Acme Credit Consultants Ltd. He specialises in offering suitable debt solutions to clients.