Leave vote: What it could mean for your money, property and investments
After months of anticipation, UK voters have decided – in an historic move – to leave the European Union some 43 years after joining its predecessor, the European Economic Community, in 1973.
Prime Minister David Cameron has also today resigned, saying a new Prime Minister should be in place by the start of the Conservative party conference in October.
Savers should pay particular attention to what Mark Carney, governor of the Bank of England had to say today:
“Inevitably, there will be a period of uncertainty and adjustment following this result.
“There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.
“And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world.
“Some market and economic volatility can be expected as this process unfolds. But we are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning.
“The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward.”
The Moneywise team has put together some of the most helpful reactions from the financial services industry below on the possible Brexit implications.
Mr Carney adds: “A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability.
“To mitigate them, the Bank of England has put in place extensive contingency plans.
“These begin with ensuring that the core of our financial system is well-capitalised, liquid and strong.
“This resilience is backed up by the Bank of England's liquidity facilities in sterling and foreign currencies.
“All these resources will support orderly market functioning in the face of any short-term volatility.
Regulator, the Financial Conduct Authority (FCA) says: “Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament.
“Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.
“Consumers’ rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the Government changes the applicable legislation.”
Richard Buxton, head of UK equities and CEO of Old Mutual Global Investors says: “It is reasonable to assume that the UK will quickly enter a period of economic recession, the key reason why we believed the outcome would be different from what has materialised today. It is, in effect, likely to be the first ever ‘DIY recession’, as George Osborne prophetically called it.”
Mark Barnett, head of UK equities, Invesco Perpetual says: “In simple terms, the UK’s vote in favour of Brexit has cast us into uncharted waters with a level of uncertainty we have not experienced for a long time. In the coming weeks and months, there may be delays to consumer spending, companies’ recruitment and foreign direct investment as the nation and wider global economy digests the decision. In combination, these factors present substantial short-term headwinds to the UK economy.
“Over the longer term, however, we believe the UK economy can cope with life after Brexit and we remain optimistic about the future outlook. We have a dynamic economy which has adapted to change before – and is now primed to adapt again to whatever change is thrown at us.”
Savings and banking
Anthony Browne, British Bankers Association CEO, says: “Customers should rest assured their banking services will continue as normal. People will be able to take money out of cash machines, exchange currency and have full access to their banking services. Any consequences of the referendum result will take some time to resolve and any changes to banking will take place over several years.”
Building Societies Association chairman, Dick Jenkins, comments: “It is important that the focus returns quickly to business as usual. The process of leaving the EU will be a relatively slow one, taking around two years. Today and for the foreseeable future nothing changes in the building society sector: Mortgages are available and retail savings are safe, exactly as they were before the Referendum.”
Holly MacKay, managing director of Boring Money says: "We should not panic. This is a different scenario to 2007 and 2008 and the Lehman’s collapse. For now, savers have no new reasons to worry. We are still in the EU today and the protection of bank accounts by the British Government – the deposit protection scheme – of up to £75,000 remains in place." For more on this read our article How safe is your bank?
Mr Buxton says: “It is difficult to say at this stage what action the Bank of England may take, but it is not impossible to imagine that it may quickly cut interest rates. Restarting the programme of quantitative easing – a feature that has been absent from the economic landscape for some three years now – also looks a possibility. At the very least, the central bank is likely to indicate its preparedness to take such action.”
Other commentators agree with him in predicting further cuts in UK interest rates, which would be terrible news for savers.
Those who want to remain in this asset class need to be proactive, making their cash work as hard as possible. Savers need to continue to shop around for the very best rates they can find, which may include high interest current accounts or fixed rate bonds, in order to access better rates.
- Don't miss Moneywise's best savings rates - updated every week.
As the Leave result came in, sterling plummeted 11% to a 30-year low, despite having rallied to the year’s high the night before.
Ian Hughes, chief executive of Consumer Intelligence says: “We would strongly advise anyone planning to buy foreign currency this weekend to hold off and anyone, including small business owners, who has to make foreign currency payments should also delay if possible."
- If you're setting off on holiday soon, read our 10 cost-cutting holiday hacks.
He adds: “The margins charged by banks and payments bureaux are likely to peak over the weekend if they are still quoting rates. By the middle of next week it should have settled down, although consumers may still lose out on Euros.
“Settling down is relative however as volatility on the foreign exchange markets is probably here to stay as investors hang on every word of the UK’s EU exit negotiations and speculators trade on the uncertainty.”
Russell Quirk, chief executive officer of hybrid estate agent, eMoov.co.uk says: “There may be many buy-to-let landlords and second homeowners rushing to list their property for sale in order to maximise their profit, before the ‘Armageddon’ on the horizon destabilises the pound. Ironically it will be these people flooding the market with additional stock that may see prices cool ever so slightly.”
- Read our article How to move on from buy to let?
Islay Robinson, chief executive officer at Enness Private Clients, says: “Potentially the greatest impact here will be on the London market. With just under 50% of central London investors being foreign, we’d expect prices to flatten in the short-to-medium term. On the other hand, if sterling plummets dramatically, the UK market will become far cheaper for foreign investors, making it a more attractive prospect – although investors will have to weigh this against London’s potential loss of status and as a politically stable economic hub. How interest rate increases are handled may also be slightly different now.”
However, the commercial property market could also be adversely affected. BlackRock strategists say: "Commercial property values could fall around 10% over the next year, led by declines in oversupplied central London, we believe. We expect sharply reduced tenant demand and a shift toward shorter lease terms. Overseas investors are set to demand a larger risk premium, or more compensation, for holding UK assets."
- Read more about how a Leave vote could affect the UK property market and how it could affect Brits buying property in the EU.
Ben Wilkins, partner at PwC, says: “The difficulty for all employers and employees is the uncertainty- the exact implications of the vote to leave depend upon the government’s next steps and the final negotiated agreements with the EU, which could take over two years. But in the immediate aftermath of the result, employers will need to concentrate on keeping abreast of the changes, reviewing the implications for their workforce and then communicating with their employees.
There are several implications of a Leave vote for both our state pensions and private pensions, whether we are in defined contribution or final salary schemes. See What does Brexit mean for pensions? for more on this.
Panicked investors have dumped shares in their droves, with the FTSE 100 down 6.6%, or 420 points, to trade just above 5900 at 8.30am – see Stock markets and pound plunge on 'Black Friday' as Britain votes for Brexit for more on this.
Some experts are pointing to potential investment buying opportunities, while others say investors should sit tight and wait for markets to calm down. But today is definitely not a good time to sell out of investments that you’ve carefully built up over the years.
To help you make sense of the situation, Moneywise has put together the best investment comments from fund managers and investment advisers on the implications of a Leave result for your investments.
The AA says: “In terms of the price of petrol at the pumps, there will be a period of instability as the market begins to adjust to the news. With the value of the pound falling by more than 9% overnight and the weaker pound against the dollar fuel prices at the pumps are likely to creep up.” If you're worried about this, read our article on how to drive down fuel costs.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.