BREXIT – How will my personal finances be affected?

July 1st 2016

Aside from the political upheavals, what are the practical problems that individuals and tax payers will be facing as a direct result of the Brexit vote?

For the last 40 years, our financial institutions have been built inside an integrated European Union. As a nation, we will need to act quickly to re-establish this framework outside the EU. The following points flag up some the issues we should keep an eye on:

• As the banks adjust to the situation, credit may tighten up: it may become more difficult to obtain loans or mortgages.
• In the short-term interest rates may fall, longer term they may rise. The latter will have an impact on debt repayment.
• As the cost of imported goods will almost certainly rise, due to exchange fluctuations and as tariffs are imposed, the cost of the weekly shop will increase.
• Adverse movements in the sterling exchange rate will possibly increase the cost of imported oil and gas. If so, monthly utility bills may increase, as will the cost of filling up our cars. Time to look at hybrids or use public transport?
• Without increased government subsidy, rail, air and road transport costs may rise adding further inflationary pressures and increases in domestic expenditures.
• Employers, suffering from the same cost increases, will be reviewing recruitment and the cost of labour. We may see rises in unemployment and downward pressure on future pay increases.
• If house prices do fall in the medium term, buyers should be cautious and ensure that their intended purchase is based on a realistic assessment of current market value. Negative equity – where loans to purchase are higher than market value – will become an unwelcome consequence for those who purchase in haste in a falling market.
• If interest rates do fall, returns for savers could all but disappear.
• This may be a good time to check out your credit rating. You should position yourself at the top end of the scale if you want to meet your family’s needs.
• Finally, austerity cuts may not be enough to balance the UK’s budget and pay off our national debts so we should be wary, future tax increases may be on the horizon.

Re-engaging with the rest of the world and renegotiating our exit with the EU is going to take some time and associated uncertainties will likely continue until they are resolved.

Time for caution and tightening of belts.

Ten-point PERSONAL check list – In no particular order, our suggestions are: 

1. Debt management
Avoid increasing your personal debt unless investing in cost reduction strategies. See 5 and 6 below. This includes credit cards, mortgages and other personal loans. If your income comes under pressure in coming months this will help you ride out the storm.

2. Cash is king
If your present income, take home pay, exceeds your outgoings, save it. You may need to call on these reserves.

3. Review personal expenditure
We all have “gym membership” or similar subscriptions that we hardly ever use; cancel them and save the savings.

4. Multiple income streams
Those of us who depend on a single income source to meet our family’s needs, and have a yen to develop other sources of income, should dust off their plans. Having all your eggs in one financial basket may not serve your best interests in the coming months.

5. Invest to save costs at home
Consider green energy opportunities, loft, floor or wall insulation grants (while they are available) and reduce your carbon footprint. If you can afford it, consider solar options for heating and power generation. This will help you to reduce your monthly outgoings.

6. Invest to save transport costs
Again, consider “green” opportunities. A fully electric vehicle may not be practicable, but what about hybrid cars?

7. Reduce costs of employment
One of the major costs you may have is the cost of commuting from home to work. If this is the case, negotiate with your employer to work from home whenever possible. Even if this is just one day a week it will make a contribution.

8. Moving house?
Now may not be the best time to consider moving house. The immediate financial uncertainty created by the Brexit vote may suppress demand for property. If so, you may be buying into a falling market and run the risk of negative equity – your mortgage being greater than your home’s market value.

9. Review your savings and pensions strategies
Call your financial advisor to see if you need to change your investment strategies.

10. Take other professional advice
We want our clients to ride-out the period of uncertainty that we may be facing. Whatever our political beliefs, or the assertions of those who portend to lead us, it is our endeavors, the steps that we take in the coming weeks, that will make a difference. Actions will always speak louder than words. Take advice. We are ready to help and committed to your long term success.

JRW Chartered accountants in Edinburgh, Galashiels, Hawick, Langholm and Peebles.