Brexit… it’s the word on everybody’s lips. To help you make sense of it all, we’ve busted the jargon and explained what the experts think.
In, out, left, right, up, down… since 2016, it’s all been a bit of a rollercoaster ride. Don’t worry – we’re here to put an end to the confusing Brexit vocab and decode what the experts are predicting.
First things first, let’s get to grips with the jargon.
Let’s start simple. The words ‘British’ and ‘exit’ have been combined to create ‘Brexit’ – Britain exiting the European Union.
The European Union (EU) is a union of 28 countries in Europe. We’ve been a member since 1973, but we voted to leave in 2016.
If a member of the EU decides to leave, they have to follow a step-by-step process. This process is what’s known as ‘Article 50’.
The EEA stands for ‘European Economic Area’. Put simply, it’s a group of European countries (28 members of the EU, plus Norway, Iceland and Lichtenstein) who agree to trade within the single market.
‘So what is the single market?’ we hear you ask. It’s an agreement that allows people, goods, services and money to move freely across the EEA.
Members of the EEA can trade with members of the EU, even if they don’t follow other EU laws.
This is the tax we pay on things imported from abroad.
A customs union happens when two or more countries agree not to put tariffs on each other’s goods.
The EU is a customs union, so we currently don’t pay tax on goods from other EU countries – though this will change when we leave.
This is where the border between two countries is patrolled by immigration and customs checks. A hard border might be staffed by the police or the military.
To avoid a hard border between the UK and Ireland, the government suggested putting a ‘backstop’ in place. The backstop would keep the UK and Ireland in a customs union if they can’t agree on their own trade deal during the transition period.
If a deal is agreed on to leave the EU on 29 March, the ‘transition period’ would give the UK and the EU more time to agree on their future relationship.
The transition period would last until 31 December 2020, but it could be extended by up to 2 years if both sides agree.
The withdrawal agreement is a plan which covers the UK’s departure from the EU. It protects British people living in the EU and vice versa, how much we’ll have to stump up to leave EU and what the transition period will be.
No deal Brexit
When you hear ‘no deal’, you might think Noel Edmonds. But when it comes to Brexit, it simply means that we’d leave the EU without a deal in place.
This means there would be no transition period after we leave and all EU rules would become useless overnight.
As the name suggests, a People's Vote would mean handing the decision back to the people. If it happened, we would get another chance to vote on what we want i.e. to leave the EU with a deal in place, to leave without a deal (no deal Brexit) or to remain.
So, how will Brexit affect my finances?
The short answer is, nobody knows. We’ve never left the EU before – so it’s difficult to predict the financial impact it could have on us.
The one thing we do know is that nothing is certain. And with uncertainty, can come instability. So, let’s take a look at what the experts think will happen to our personal finances.
Loans and credit cards
You might be wondering what kind of effect Brexit will have on loans and credit cards. After years of no change, the Bank of England dropped their base rate (the standard interest rate for all other UK banks) after the EU referendum.
Since then, it’s risen twice – so it certainly seems like things are a little up-and-down in the world of finance.
Money saving expert Martin Lewis explains:
“Most personal loan rates are fixed at the outset, so if you've got one it is unlikely to change. However if you are due to get a loan, again we are currently (for loans above £3,000) close to or at all-time record lows. So while rates could sneak lower, if you need to borrow, sooner is safer.”
So to put it simply, if you already have a loan, the chances are that you’ll continue to pay the same each month. And if you’re thinking about taking one out, it could make sense to do it sooner rather than later, while you can bag a lower interest rate.
"Credit card rates tend not to be too closely linked with UK interest rates, so are unaffected."
Since credit cards aren’t linked to the Bank of England’s rate, we shouldn’t see the cost of credit cards dramatically rising or falling any time soon.
All of this uncertainty means interest rates are really low currently – and for mortgages, this can be good news.
Mortgage expert David Blake of Which? Mortgage Advisers says:
“Mortgage rates are incredibly low right now and many will want to fix into a low rate to give themselves security as we move into a period of uncertainty. But don’t just jump into a fixed rate without considering the alternatives – there are plenty of flexible products that would leave your options to remortgage open if rates did start to change.”
So if you were planning on getting a mortgage, it could make sense to go for it – but a cheap mortgage alone isn’t enough of a reason to rush out and buy a house if you’re not ready.
Back in September, the Bank of England’s governor Mark Carney suggested that interest rates may rise if a no deal Brexit happened. This is because, if the pound drops in value after we leave, the Bank of England would rise rates to help control demand. On the other hand, if the economy is boosted by Brexit, the opposite could happen.
You shouldn’t need to rush out and lock your money away into a fixed savings account before Brexit, though. As Martin Lewis says:
"For savers, while you can lock in fixed savings rates, you'd be locking in at relatively low historic rates. So I wouldn't do it just due to worries over Brexit risks”
And, if you already have a savings account in the UK, you’ll be protected for up to £85,000 under the Financial Services Compensation Scheme should firms go bust.
If you’ve got a big financial decision coming up, try to treat it like you would if Brexit wasn’t happening at all. As with anything else, it’s always worth doing your homework and asking for a professional opinion if you’re not totally sure.
All information correct at time of writing article 26/02/19
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By Emily Hardy