A no-deal Brexit would result in a ‘sharp increase’ in borrowers falling behind with their mortgage repayments over the next three years, a lender has warned.
In-depth analysis by Kensington Mortgages found a third more borrowers would be in arrears if Britain left the European Union (EU) without a deal than if the UK were to remain.
Kensington also forecast repossessions would also soar by 10% in the next five years if there were a no-deal Brexit.
The projections, which were carried out by analysts using a tool to test out scenarios using a representative sample of 750,000 loans, found that in the event of a no-deal Brexit, by spring 2022 there would be over 70,000 Brits who were more than three months behind on their mortgage repayments.
This compared to 52,000 mortgage-holders who would be in arrears if Britain were to remain in the EU.
Longer repayment times
The analysis also forecast, over five years, a no-deal would lead to an additional one million Brits, who would normally have remortgaged to a better deal or taken ownership of their home, still repaying their mortgage.
This is because house prices would fall, and there would be less mortgage finance available – something which would leave the typical mortgage with less equity.
Bank of England rescue
Kensington said if a no-deal Brexit were to go ahead, the Bank of England would likely launch a large-scale intervention which would offer emergency liquidity to banks and a reduction in market interest rates.
While this would reduce the impact on homeowners, and some might even be better off in this situation than they would be if Britain were to remain, it would come at an expense to the public purse.
This rescue wold mean the number of borrowers more than three months behind on payments would be 3.7% lower than if Britain remained in its current trading position with Europe. The number of defaults would not change, Kensington said.
Mark Arnold, CEO of Kensington Mortgages, said leaving the EU with no deal in place would, according to its model, see more homeowners struggle to make their monthly payments.
“Our expectation, however, would be that if we did end up exiting without a deal then the Bank of England would step in, as Mark Carney has hinted recently, and stabilise the market,” he said.
“Yet that would come at a cost to the taxpayer, with the public finances propping up homeowners at other people’s expense.
Benefit to existing homeowners
“The data shows that more and more people are struggling to get on the housing ladder, with the number of mortgages falling every year since 2008.
“If there was an intervention it would mostly benefit existing home owners by inadvertently artificially propping up prices, to the detriment of would-be first-time buyers. So there would likely be some collateral damage under a no-deal scenario, and the number of mortgages may fall further still as a result.”
