Brexit impacts on savings, mortgages and pensions explored as the transition period ends

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Brexit has been at the forefront of life in the UK since the vote was cast in 2016. Despite the difficulty associated with getting the UK to leave the EU, a new relationship between the two as 2021 approaches and could impact a number of financial realities.

While there is still much left unclear, certain elements of the financial landscape are certain to change.

This includes the savings market and Paul Green, the CEO of over50smoney.com, explained how coming legislative changes could have an impact on savings rates.

Savings

The Financial Services Compensation Scheme details there will be “no changes” to their scope of protection before December 31 but as Paul explains, changes beyond this date are incoming which will have a drastic impact on the savings market: “In terms of savings we already know that Financial Services Compensation Scheme (FSCS) will be extended.

“This protects cash pots of up to £85,000 per bank, building society, or other institution, in case they go bust.

“After Brexit, the government has said that ‘UK branches of EU or EEA-based firms will now be covered by the FSCS up to £85,000’, where previously they might have been covered by the EU deposit protection scheme.

“It seems likely that some EU based financial brands without a UK banking licence will leave the savings market entirely.

“This would be bad for competition and potentially mean that savings rates remain lower for longer.”

As Paul moved on, he covered mortgage arrangements which according to his analysis, has been severely impacted by the EU.

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Mortgages

As Brexit moves forward, it could lead to the end of the mortgage credit directive, a directive that has reportedly led to the creation of tens of thousands of mortgage prisoners.

Mortgage prisoners emerged when people who took out mortgages prior to the directive found they couldn’t remortgage to a better deal thanks to stricter lending criteria.

This occurred even where mortgage holders were completely up to date with their repayments.

The UK’s financial regulator, the FCA, has announced plans to help people stuck in this predicament but Paul detailed additional changes could be forthcoming: “After Brexit I think there could be a significant re-look at how the UK mortgage market works.

“While the housing market is currently buoyant the ongoing economic fallout from the pandemic means that no one expects this to last.

“We need to build more homes in the UK and reverse the decline in homeownership.

“The mortgage market doesn’t currently support these goals.

“With many first time buyers now being required to have a minimum of a 10 percent deposit and often a 15 percent deposit, it is impossible for them to get onto the property ladder.

“This is especially the case as many lenders have started to require proof that deposits were saved by borrowers rather than coming from the bank of mum and dad.

“Post Brexit it’s highly likely that there will be a push towards multi-generational mortgages enabling the wealth of older generations to fund the mortgages for younger house buyers. It’s also likely that lenders will be required to support new first time buyer schemes.”

Additionally, pension assets are also likely to be impacted in the coming months, which will affect those based around the continent or with their funds set up overseas

Pensions

Fortunately, there should be no immediate disturbances for pensioners in the UK but changes could arrive down the line, as Paul concluded: “Brexit should have no short term impact for pensioners living in the UK in receipt of the state pension and UK based private pensions.

“These will continue to be governed by UK rules. If you already live in the EU you benefit from an annual increase to your UK state pension, in the same way pensioners living in Britain do – thanks to an agreement with the EU.

“The government has confirmed that this uprating of expatriates’ pensions in the EU will continue. It will carry on increasing those pensions by at least 2.5 percent each year, until at least March 2023.

“However, increases for those moving to EU countries after the end of 2020 will depend on the final Brexit negotiations.

“If you are considering transferring your private pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), you should do this now or you run the risk of paying a 25 percent tax. Currently, you can transfer to EU/EEA-based QROPS tax-free, but this could change after the Brexit transition finishes at the end of the year.

“The UK has already brought in a 25 percent ‘overseas transfer charge’ for other transfers, and could easily extend this to EU/EEA transfers once its EU obligations end.”

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