While the UK’s exit from the EU has largely been relegated to a footnote for much of the mortgage market amid the pandemic — with few expecting any shocks to hit the domestic sector — it may not all be plain sailing.

Many in the sector warn there could be problems for any-one living in the EU who owns a UK property because some UK lenders have withdrawn lending to such groups.

Yet domestically there are fewer worries. Intermediary Mortgage Lenders Association principal researcher Rob Thomas says: “The free trade agreement reached with the EU came as a relief to businesses that trade with the continent, and more broadly to economists who feared the longer-term consequences of the UK moving to trade on World Trade Organisation rules with the EU. The economic impact is likely to be significantly less severe than the WTO option.”

London & Country director David Hollingworth adds: “Given confidence plays such a part in the housing market and in determining activity levels, the fact that a deal was ultimately reached is likely to have headed off any initial knock to confidence that a no-deal could have prompted.”

In fact, Hollingworth is positive about the outlook for the market in the context of Brexit, adding: “Of course, there may still be some impact on the economy from the deal more generally, but for now I would expect that the deal will have done enough to make a difference and prospective buyers are unlikely to be put off by Brexit.

“Mortgage rates remain extremely competitive in such a low-rate environment and that would have been the case no matter what the outcome of the negotiations. With such competitive rates on offer and likely to remain in place, mortgages will at least remain affordable and therefore help support housing market activity.”

Some have even played down the potential impact of Brexit on the UK mortgage market, whether a deal was struck or not.

Cherry Mortgage & Finance director Matthew Fleming-Duffy says: “Brexit will have an impact on the flow of goods, services and people between the UK and EU member states. Yet I cannot see how this will directly impact a UK borrower looking for a mortgage; nor do I see how this would have had any significant impact on mortgage rates, even if we had faced a no-deal scenario.”

Pandemic effect

It is a widely held view that the pandemic is overshadowing virtually everything right now, thereby diminishing any impact Brexit could have on the market. For example, the surge in house prices over recent months has largely been attributed to the stamp duty holiday that was introduced to stimulate the market as a direct result of the financial fallout from Covid-19. The Nationwide House Price Index shows that annual house price- growth in 2020 hit a six-year high of 7.3 per cent.

Coreco managing director Andrew Montlake says: “December saw property transactions reach fever pitch as people rushed to beat the stamp duty deadline. The worry now is of a collapse in property transactions from April onwards when the stamp duty holiday ends.”

When weighing up the impact of both the pandemic and Brexit, Fleming-Duffy says: “The Covid-19 pandemic and the decision to move our country into lockdowns as a method of dealing with the crisis will have a far wider impact on our economy, and the economies of other countries severely affected.

“While Brexit will take some adjustment for many businesses, it will not compare with how we adapt to severe global economic contraction.”

With so many factors that impact the economy being uncertain, some commentators are reluctant to make any predictions about the UK mortgage market in the wake of the Brexit deal.

The Building Societies Association, for example, says it is difficult to attribute any impact on rates, demand or house prices to Brexit alone because there are too many other moving parts.

Financial services passporting

However, experts have pinpointed an area of the mortgage market on which the Brexit deal may have a direct, and negative, impact: anyone who lives in Europe, including expats, could struggle to get a mortgage from some lenders.

The problems stem from the ending of financial services passporting arrangements on 31 December. These arrangements had allowed UK banks and building societies to trade freely in EU states.

Without these rules, lenders may need to apply for a licence in the relevant country, although there is still speculation that some sort of deal could get done in the coming months to alleviate the problem.

One of the first impacts of this change began to be felt in the latter half of 2020 when a number of banks and building societies, such as Barclays, Lloyds and Nationwide, warned they would close customers’ UK bank accounts if they resided in certain European countries. It then emerged at the start of this year that TSB intended to prevent customers who lived overseas from completing a product transfer on a UK buy-to-let mortgage. If they could not find another deal with another lender, they would be stuck on TSB’s expensive standard variable rate and therefore could become a mortgage prisoner.

Brokers have pointed to other lenders making similar moves. Fleming-Duffy says: “We have already seen the likes of Saffron Building Society withdraw lending to expats in the EU due to lack of clarity regarding its regulatory obligations.”

Mortgage lottery

John Charcol senior technical manager Ray Boulger thinks mortgages could become a lottery for expat borrowers, depending on their lender. He says: “Different lenders are interpreting the rules differently and some that have discontinued new lending to expats are still offering product transfers.

“Just as some people became mortgage prisoners after 2008, depending on who their lender was, it now appears that whether an expat will have access to product transfers depends on their lender’s legal interpretation of an issue that neither brokers, solicitors nor borrowers could reasonably have been expected to take into account at the time of the application.”

Like UK nationals living in the EU, foreign nationals who have always resided in the UK may also face difficulties obtaining a UK mortgage in the wake of the Brexit deal, for the same reasons.

Fleming-Duffy says: “For some EEA and Swiss nationals who have not applied for their settled or pre-settled status in the UK, obtaining a mortgage will certainly become difficult.”

Some lenders have already begun to withdraw lending for particular Europeans. NatWest, for example, updated its criteria in January to declare that “EU, EEA or Swiss citizens who lived in the UK before 31 December 2020 need to have received confirmation of their ‘Settlement Status’ before entering a mortgage application for new lending”.

The Association of Mortgage Intermediaries wrote a factsheet for brokers in December warning of problems for EU-based borrowers who also owned a property in the UK, and it says that advice still stands. It points out that brokers too may face difficulties helping clients based in the EU.

It states: “If you are a UK firm with customers who are based in the European Economic Area after the transition period comes to an end, the extent to which you can provide services to these customers is a matter of local law and regulation in each jurisdiction.

“Broadly speaking, general servicing of EEA-based customers who have a mortgage on a UK property is likely to be permissible. However, the risk is that EEA countries may have differing rules and regulations on areas such as cross-border communications and what constitutes the servicing of a customer, which mortgage intermediary firms could fall foul of. Therefore it is important that firms with customers in the EEA review and understand the local laws and regulations in each of the relevant jurisdictions, speak to local regulators and consider legal advice.

“Recommendations have been made that if a customer took out a product or service in the UK and has moved cross border it is treated as a UK contract. However, these are recommendations only and firms cannot assume that this will be the case.”

Overseas purchases

A natural question many will ask is whether there will be the same appetite among UK nationals for purchasing a property in the EU as there was before Brexit. After all, freedom of movement as we previously knew it no longer exists and, in many cases, without any additional paperwork, UK residents can spend only 90 days in any 180-day period in the EU.

Although that may not affect those who simply want to buy a holiday home, it may stop some from permanently uprooting. Nevertheless, some experts believe that demand will hold up, although buyers could experience delays due to Brexit and, in the shorter term, the pandemic.

Overseas property and finance specialist Simon Conn says: “Even during the current times with Covid and Brexit, the general appetite for buying overseas is still very buoyant. British investors are still buying properties overseas.

“The main change seems to be that it is a slower process. Lenders’ paperwork may be more onerous for British purchasers as contracts may need to be changed to allow for Brexit, and with the global Covid-19 restrictions it has been harder to view properties and complete the purchase, due to staff shortages.”

This time last year it would have been unthinkable for any discussion about the impact of Brexit to be so devoid of the prospect of major change for domestic borrowers, and the army of brokers who serve them. However, we are living in different times and the pandemic is at the centre of virtually any debate on any subject.

Furthermore, the market, like the rest of the world, has undergone so much Covid-fuelled upheaval in recent months that perhaps it is immune to what currently may feel like lesser issues. For many brokers, Brexit has become one less worry on their mind.