No-deal Brexit: your financial survival guide

financial business guide

1. House prices and rents

The possible scenario

The Office for Budget Responsibility, the government’s independent forecasting agency, reckons house prices will tumble by around 10% in a disorderly Brexit. The average UK house price is £216,515, according to Nationwide, so that would translate into around £21,000 off the average home, taking it back below £200,000. In London, where average prices stand at close to £500,000, the fall would be closer to £50,000. Prices in the capital are already running at about 4.5% below the level of a year ago, falling at the fastest rate in a decade. Rents have been flatter across the country, but if a no-deal Brexit sees EU migrants stop coming to the UK or returning home, rents in some locations could be expected to fall.

What you can do

Most people will sit tight and do nothing, preferring not to buy or sell during such uncertainty. The OBR sees property transactions falling by a fifth in the event of no deal, which is bad news for estate agents, removal companies and retailers of furniture, carpets and curtains.

But there are always those who have to buy or sell because their job has moved or their family has expanded. What should they do? If you’re the seller, don’t fall for the estate agent’s trick of over-pricing a property to get the business, then slashing later to get a sale. Examine actual sold prices on your road – Zoopla has an easily searchable database – and take a bit off to reflect today’s market.

Buyers have a choice; defer a purchase until November to get clarity on Brexit (but if there is a deal, then prices could start moving up again) or make cheeky low-ball offers and see if a vendor is desperate enough to accept. How do you know a seller is desperate? One way is to search the property’s listing history – most sites will say how long ago it came to market, but won’t say if it was removed then relisted with a reduced price. But there are tricks, such as those listed at Propcision, to find old data from Google.

There is far less data available on rental markets, but if a landlord tries to increase the rent in this market they’re having a laugh; do your best to challenge it.

2. Mortgages

The possible scenario

Faced with a recession induced by a no-deal Brexit, the Bank of England cuts base rate close to zero and embarks on a monetary loosening policy that sends interest rates across the board to new lows. Mortgage rates respond, with the best fixed rates dropping below 1%.

What you can do

If you are about to come off a fixed-rate deal, and believe we are heading to no deal, then hold your horses. As recently as 2016 mortgages were offered at rates as low 0.99% – a significant saving over the 1.3% to 1.7% best buys available this week.

The other strategy is to take out a tracker mortgage that moves down (and up) in line with Bank of England base rate.

For example, Nationwide has one of the cheapest two-year tracker remortgage deals on offer – at 1.44% – which tracks the base rate, and adds 0.69%. If base rates went to zero, buyers would see their monthly payments fall massively as their pay-rate would drop to 0.69%.

However, buyers need to be aware that if interest rates went up substantially later on, payments would rise accordingly, says L&C’s David Hollingworth. He says most buyers will still want to stick with a fixed-rate deal, given that they are still at very low historical levels, and buyers have the security of knowing what they paying for its term.

3. Savings and cash Isas

The possible scenario

The Bank of England moves quickly to cut interest rates and embarks on a new round of quantitative easing to boost the economy. Once again, the banks are awash with cheap money, meaning the interest rates payable to those with savings is only going one way – down. At the height of the financial crisis, the rates payable to savers in plenty of accounts fell to 0.1%, resulting in negligible returns.

What you can do

If you believe that no deal is now a likelihood – and you want to keep your savings in cash – now’s the time to move them into a fixed-rate bond that guarantees the rate for the bond’s term. This week Metro Bank was offering a one-year, fixed-rate bond paying 2%. If you want to lock your money in for two years, FCMB Bank is paying 2.22%, while five-year bonds promise 2.4%. If you prefer to have some access to your cash, the Charter Savings Bank is paying 1.81% on balances of £5,000 and over. Access to your cash is available with 95 days’ notice. These rates might look uninspiring, but if the stock market tanks post-Brexit, and savings rates collapse, it will look a very smart move.

4. The currency

The possible scenario

Sterling’s slide this week is the canary in the Brexit coal mine, as traders began marking the pound down to what they think it might be worth in the event of a no-deal exit. Against the euro, the pound fell below €1.10, while against the dollar it was heading to $1.20. A disorderly departure could see the pound fall to one-to-one parity against the euro and the dollar even before the 31 October deadline.

One indication comes from betting company Boyle Sports. At the start of the year, it was giving punters odds of only 8-1 that the pound would collapse to be worth just one euro, but has slashed the odds to 3-1 that we’ll reach that point sometime this year.

What you can do

If you think the pound will continue to tumble, then buying your holiday money now makes sense, even at today’s depressed levels. Don’t ever buy currency at an airport bureau de change, where rates for euros are already fantastically low, with many giving you just 0.9 euros for each pound. Buy online and in advance for much better deals; you’ll get around €1.06 for each pound from Travelex online this week. See our separate guide to getting the best deal on holiday money.

The currency’s collapse would make everything in overseas resorts this summer more expensive. It’s probably too late for most people now, but late bookers may want to consider half-board or all-inclusive options to control the costs.

There is also an argument for booking very early this year for travel such as ski holidays. If the pound falls heavily, the tour operators will be forced to raise prices in sterling, so locking a price now may make sense. Or decide to take your next holiday in the UK.

If you want to take a punt against sterling and make some money by trading, all you need is a credit card and an initial deposit of around £100-£200 to join online forex traders such as eToro, City Index and so on. The big high street banks also let you trade, with minimum deposits starting at £10,000. But forex trading is fantastically risky, and only those able to afford to lose a lot of money should even begin trying.

5. Pensions

The possible scenario

Workers with final salary-style pensions aren’t affected, as they have guarantees, but for everyone else, their pension pot depends on the performance of the stock market. Which way will markets go in a Brexit crash-out?

Broadly speaking, domestically focused UK companies, which make most of their profits in the UK, will be obvious casualties and their share prices could fall heavily in the next few months. But the giants of the London stock market – such as BP, Shell, HSBC and Glaxo – make the vast majority of their profits in overseas markets and are much better protected from Brexit. Indeed, as sterling plummets, they are likely to rise in value, because their dollar earnings suddenly become worth much more in pounds.

What you can do

Most people think they can’t do anything about their company pension scheme, but they can.

You have to find out who manages your pension scheme, and then see what level of control you have. For example, Legal & General manages 14,000 pension schemes for 2.8 million workers across the UK, including those at GNM, the Guardian’s parent group.

Members can view the value of their pension, and make choices about where the money goes, picking between cash, equity (shares) and bonds (which pay fixed rates of interest but can also go up and down in value).

If you are convinced that a Boris Johnson-led Brexit is going to be a calamity, that the economy will tank and UK corporate profits collapse, then you can choose to shift your pension into overseas shares.

If you believe in a total disaster – a view not shared by investment experts – you could even choose to put all of your pension into a cash fund, which means it won’t be affected by a fall in the stock market. Alternatively, if you believe that no deal won’t be that bad, then that would suggest you buy into domestic UK companies which could enjoy a huge “relief rally”. But remember, going to any extremes in investing (i.e., all your money in cash, or all in one particular market) is a very risky thing to do for the long term, with almost nobody able to expertly time their investments to catch major market swings.

6. Individual shares

Possible scenario

A Guardian Money reader asked us this week what to do about his old privatisation and demutualisation shares in the event of no deal. He holds both Lloyds (as a result of the Halifax demutualisation) and Santander. Should he sell them, he asked, fearful that a no-deal Brexit will send them crashing.

What you can do

We’re not going to give advice on individual shares, but here are a few pointers. Lloyds is a UK-focused bank which makes nearly all its profits in the UK. Therefore it is in the bucket of shares not particularly attractive to worldwide investors, and if there is a recession after no deal, it is the most exposed to customers defaulting on their loans.

But its shares have been weak for a long time. It was 72p a share just before the referendum and is 52p now. It’s arguable that the damage from Brexit is already in the price, although it can always sink lower. It has returned to paying dividends, so the yield on the shares is actually quite attractive. If you have no urgent financial need to sell, it may be worth holding for the long term, but expect bumps along the way.

Santander is a global bank with a big British operation. So it is impacted by Brexit, but much less so than Lloyds. That said, its shares have, if anything, performed worse than Lloyds. They have fallen from €6.18 in 2017 to €3.90 this week. Maybe the lesson is that, after the financial crisis, investors are wary of banks, and that they will never again be growth stocks, and you should hold them instead for a steady supply of dividends.

7. Jobs

The possible scenario

A no-deal Brexit would plunge Britain into a recession that would shrink the economy by 2% and push unemployment above 5%, according to the OBR. Greg Clark, the government’s business secretary until sacked by Boris Johnson, said during the leadership campaign: “It’s evident that if you have the disruption that comes from a no-deal Brexit, there will be people that will lose their jobs. It’s many thousands of jobs. Everyone knows that.”

What you can do

Realistically, most people can do very little about the threat of job losses, particularly if they are in low-skilled positions.

If your job does look at risk – car plants such as Ford and Vauxhall come to mind – about the best you can do is try to build up some savings to tide you over. According to the government’s Money Advice Service, “a good rule of thumb to give yourself a solid financial cushion is to have three months’ essential outgoings available in an instant access savings account”. But sadly few people are able to save that much. According to Aviva, low income families typically only have around £100 in savings.

8. Driving abroad

The possible scenario

On a late autumn trip to the continent, after Britain has crashed out of the EU with no deal, you find yourself having been pulled over by a gendarme 20km outside Calais. He/she will want to see your UK driving licence, your international driving permit (IDP 1968), your insurance green card, the car’s log book (V5 document) and a GB sticker. Tourists flying into the EU and hiring a car will also need an IDP in several countries including Italy, France and the Netherlands. It is this that is likely to catch out future travellers.

What you should do

If you are heading abroad after 31 October, you need to take all these items with you. The Post Office will sell you an IDP for £5.50 – you’ll need to show your UK licence and passport. But they will only be required in some countries following a no-deal Brexit; tourists hiring a car in Spain or Portugal won’t need one for stays of up to six months.

If there is a deal, UK licence holders will continue to be able to drive using their UK driving licence while visiting all EU and EEA countries. Your car insurer will supply your green card.

9. Health

The possible scenario

A no-deal crash-out leaves many of the 1.3 million Brits living in the EU facing a major problem – what will happen if they are rushed to their local hospital? A no-deal departure ends the UK’s involvement in the European health insurance card scheme and other agreements overnight. While it is bad news for holidaymakers, it has the potential to force many of those who live in the EU to abandon their dream.

What you can do

For those going on holiday, it is simply a case of buying travel insurance before you leave, and the government is advising just that. For those living abroad, Spain has said it will guarantee continued healthcare access to British expats and tourists in the country until the end of 2020 – provided the UK offers Spaniards here the same deal.

This is highly likely as the UK government has said seeking bilateral agreements to maintain healthcare rights is a top priority.

In France, another country in which lots of retired Brits live, the position is more complicated, particularly for those who are more temporary – spending just six months there at a time. They are being advised to formalise their residency where they can.

It’s been reported that France is confident of reaching a bilateral agreement with the UK on health care – helped no doubt by the fact that there are lots of French people living and working in London.

Other countries face the same challenge. The problem for some Brits is that those agreements will not be in position by 31 October. Those with dangerous ailments may have to consider returning to the UK temporarily.

Medicine availability is what vexes people more seriously. Critical and short shelf-life medicines – some of which may need to be refrigerated until they are consumed – would be most vulnerable in a no-deal scenario, with fears they could be held up amid chaos at the ports.

Already there are reports of diabetics informally stockpiling their own supplies of insulin by giving themselves less on a daily basis, with potentially dangerous consequences.

But the government says the fears are misplaced, as drug companies have already been told to build up an additional six weeks’ supply of medicines to provide a buffer in the event of gridlock at Dover.

10. Prices in the shops

The possible scenario

Two things could be triggered by a crash-out Brexit: a further slide in the value of sterling that results in the price of imported goods rising; and a complete change in the import tariff system, which could see some goods rise in price (such as cars from Germany) but others fall. The Theresa May government said in March that tariffs would be cut to zero on 87% of imports to the UK as part of a temporary no-deal plan, but prices of some imports including meat, shoes and cars will go up.

What you can do

The worry will be the products that go up in price and their availability. Among the consumer goods that will be hit are imports of beef, prices of which will go up by almost 7%, cheddar cheese, up by about £20 per 100kg, and imported fully finished cars, which would attract a 10.8% levy, or about £1,500 for an average new car.

This suggests that if you have an eye on a new BMW or Mercedes, it might be worth bringing forward your purchase to before October.

For other goods, the savings from stockpiling in advance are probably minimal. For example, while officially the change in tariffs means that tins of tuna could go up by 24%, imported men’s wool jackets by 12%, and men’s, women’s and girls’ underpants made of synthetic fibre by 12%, the reality is that shops will absorb some of the increase or may substitute for domestically produced or alternative suppliers.

 

This article was written by Patrick Collinson and Miles Brignall from The Guardian and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.