How will Brexit affect me right now?

justin schamotta
By Justin Schamotta

european commission©

THE decision of 52% of the UK to leave the EU in the recent referendum has important ramifications for the country, many of which won't become apparent for some time.

But in the short-term the effects of our vote to leave are already being felt, many of which are being driven by the relative value of sterling, which - as many predicted - has had something of a dramatic fall.

That wasn't entirely scaremongering on the part of the Remain campaign, as it's frequently been noted that many currencies are shaky in periods of uncertainty; the dollar, for example, often suffers during US Presidential elections.

So while we wait for the pound to recover, life must continue. The question is - what can we expect from it?

Holiday money

One obvious result of the pound falling in the wake of the referendum result is that foreign currencies now cost relatively more for us to purchase.

Panic buying is never a good idea - and in any event, it's wise to hold off from exchanging our holiday money until near the date of travel, as trying to second-guess the direction of exchange rates too far ahead of time rarely pays off.

Those who do want to guard against any more wobbles downwards can always use a prepaid travel card to purchase foreign currency gradually.

Prepaid cards

When we load the card we effectively lock in that day's exchange rate, so those with the inclination can watch the currency markets and seize on the days when the pound is doing relatively well.

Those who've yet to even book their holiday can still get good value for money by choosing destinations where the pound - even in its currently depressed state - still goes relatively far.

For example, in Argentina, the pound buys 149% more pesos than it did three years ago; Russia and Zambia sterling goes 70% further than in 2013, and in Turkey it's 30% stronger than back then.

Cost of fuel

A fall in the value of the pound also means we can expect fuel prices to rise - with some predictions suggesting it could be by as much as two to three pence per litre.

How much the price at the pumps increases by depends on two factors - the relative wholesale price increasing, and how much the suppliers can delay the effect of those increases.

However, should sterling stay low, even the most prepared suppliers will have to raise their prices - affecting not just the cost of travel for us, but the price of goods and services.

That said, so far the post-referendum impact on fuel prices hasn't been as bad as some had feared - partly because the price of crude oil has been falling.

The price at the pump
How to cut fuel spending

If the Brexit vote hadn't had the impact on the pound that it has, fuel would now be notably cheap - and even with increases of 2p to 3p per litre, it'll still be cheaper than it was a year ago.

As mentioned above, the rising cost of fuel will inevitably affect the price of any goods or services that rely on transport - which is most of them.

Furthermore, unless we only buy home grown produce, we're likely to see the cost of our weekly shop rise further still.

The weak pound means that imports are relatively more expensive than they were, and as a large proportion of the food we buy is imported, it's likely that at least some of that increased cost will be passed on to us.


The cost of borrowing is determined by the Bank of England base rate, which is currently 0.5% - a figure that's remained unchanged since 2009.

Analysts have been watching and waiting for a possible rate rise for some time, but the Bank of England have continued to hold them at their record low, citing the need for further signs of growth and stability before they'll consider it.

Even so, the Treasury suggested before the referendum that a "Leave" vote would be the factor that finally resulted in a rise in the base rate.

The Government look to have been proven wrong, at least for the time being however, as the Governor of the Bank of England himself, Mark Carney, has indicated that the base rate may actually be cut in the near future.

That could make personal borrowing and some mortgage lending even cheaper than they already have been of late.

Mortgages and house buying

But while access to cheaper loans may well be celebrated enthusiastically by those hoping to buy or remortgage a property, the downside is that we can expect banks to become stricter about who they lend to.

This shouldn't be a problem for older and more experienced borrowers - who will have built up a good financial history and/or reasonable amounts of equity - but it could affect younger and first-time buyers.

It will also affect buy-to-let landlords, and is therefore likely to have negative consequences for tenants - some of whom will also be trying to buy, but finding that more difficult too.

Barclays and Nationwide have already raised buy-to-let interest coverage ratios (ICR) to 145%, with other lenders likely to follow suit.

The ICR is an affordability measure that seeks to ensure that the rent charged by a landlord will cover the mortgage, and then some.

Upping the ICR means that landlords will need to find larger deposits to reduce the size of the eventual mortgage, and therefore the size of their repayments. It could also mean that for those who can't do that, it's likely that they'll have to charge their tenants more.

But while the current situation may not be great for landlords, tenants and first time buyers, it is, as we mentioned above, a relatively good time to be buying or remortgaging - particularly for those opting for a mortgage fixed to the interest rate.

HSBC's 0.99% deal
Cash back from the Post Office
How much it costs to buy

By comparison, signing up for a tracker mortgage could be risky, as interest rates always have the potential to rise.

Tracker mortgages are so named because they track the Bank of England base rate at a set margin above or below it - for example, a tracker set at 1.0% more than the base rate would charge interest of just 1.5%.

They seem good value when the base rate is low, but when it rises, borrowers can suddenly find themselves faced with much higher monthly repayments.

If interest rates do rise - which at the moment looks unlikely - the IMF and the Treasury have predicted that house prices could drop by between 10% and 18%.

Not only will people with trackers be paying more per month, but they'll be paying more on an house that's suddenly worth much less.

And while we might think that cheaper houses would make first-time buyers happy, they'll still need to pass the affordability checks, and their mortgages - and other borrowing - will become more expensive.

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