Is Brexit Going to Affect Getting a Loan?
- 27th September 2018
- Posted by: Loanable
- Category: Resources
There seems to be a few important questions on people’s minds lately, and one is how the Brexit is going to affect their personal finances; in particular getting a loan.
Another question which many have and appears to be slightly more immediate is what happens if a creditor I have goes bust, or goes out of business? This is in response to the recent demise of payday lender Wonga, who recently entered into Administration.
Borrowers who have outstanding loans with Wonga, and those who have filed compensation claims against Wonga, are wondering what will happen???
One of the reasons why Wonga went out of business was all the compensation claims made against them, worth millions of pounds. These claims were for unfair collection practices, being charged high fees, and also being granted loans they could not afford to repay.
As for how these claims will be handled now that Wonga is insolvent and no longer trading, the claims will be treated like any other creditors Wonga may owe money to. Unfortunately, the claims are small compared to others Womga may owe money to, so it is doubtful the claims will ever be paid.
If you have a loan with Wonga, yo are still expected and obligated to pay the loan. Just because the lender goes out of business does not relieve you of the responsibility of paying the loan.
The Administrators will set-up how the payments are to be collected and handled, and the loans could be sold off to another agency to continue to be collected. The loans are an asset to Wonga, and in insolvency assets are liquidated to pay back creditors.
So if you have a loan with Wonga, you still owe it and need to pay it.
But what about the big question, Brexit…how is leaving the EU going to affect getting a loan, loan payments, and everything loan related.
The vote to leave the EU was a huge responsibility placed into the voter’s hands, and one that many feel should never have been allowed. Leaving the EU is a massive undertaking, and the implications are likely to touch everything here in the UK, in some way.
From food costs due to import and export changes and tariffs, to immigration, and who can enter, stay and work here in the UK, to even as to if we can go to EU countries on holiday or take our pensions and retire somewhere warm, it is all going to be touched and hanged by the Brexit.
So what about loans, getting a loan, interest rates, and even collecting a loan?
The bottom line (pun intended) is that the Brexit should not have any real direct affect on our lending institutions in any large scale.
What About Interest Rates?
While the BOE/Bank of England making any changes to interest rates may or may not be related directly to leaving the EU, there is always the possibility of interest rates changing. And this can be up or down.
If the BOE increases the base rate, this could trickle down to savings accounts seeing their rates increase slightly, which for those with money in the banks is a good thing.
Those borrowers with variable, or tracker type loans, such as mortgages, could see their loan payments increase. So that I not a good thing. Any increase in loan payments could put a financial struggle on a borrower.
Leaving the EU is a bit of a gamble as it is uncharted territory, we don’t know everything that may occur. We can use models, and see how other countries have handled the leaving of the EU, but the fact remains the UK is a large country, and we have been dependent on the EU for many years, in many ways.
No longer being a part of the EU means no longer needing to follow their rules and laws, and many of these in part regulate financial aspects of our lives, such as banking, insurance, and investments.
So to say we know everything as to how all this will be impacted by the complete leaving of the EU, is again uncharted territory, and may need to be dealt with as we go along.
There are some things we can expect that will change:
Travel: Travelling between the UK and the EU once the full break has occurred could be a bit challenging. As we plan to limit immigration into the UK, the EU could impose the same. Which could affect expats looking to retire in Spain, Portugal, or other countries.
The Brexit could also mean we are required to have Visas, even if they are just a minor formality and paying a fee to go on holiday to the EU.
Prices: Food prices is one area we may see a price rise. Here in the UK we cannot grow all the food we need, and require outside imports of food and other items to maintain a seamless flow of various products.
This also brings up the importing of various products, and the tariffs those in the EU will be required to pay. These additional costs will be passed onto us the consumers, which increases prices.
Brexit and Insolvency in The UK
This is one area that has not been addressed, so it can only be speculated on. How will the Brexit and us fully leaving the EU affect our insolvency laws here in the UK?
Currently if you have debts in the EU, you can include them in any of the forms of insolvency here in the UK, bankruptcy, DRO/Debt Relief Orders, and IVA’s/Individual Voluntary Arrangement.
The accounts in the EU can be included, and discharged, and any protection afforded you as a debtor covers you in the EU and the EU.
Once we leave the EU, you may be able to include the EU accounts, just as you can include accounts from any country in the world in a UK insolvency proceeding, but the protections you receive are only good now in the UK, and not also in the EU.
That is unless some other arrangements are made and agreed to in the full Brexit. However, nothing has even been mentioned about this in any documents or meetings made available to the general public thus far.
In essence the Brexit is making the UK more insular in that we are narrowing our options, unless again other arrangements are made and agreed upon.
So any increase in prices such as food and other consumables, could affect a households ability to repay their current loans, just as any increase in interest rates could affect affordability for those borrowers on variable rate loans.
However, from the perspective of granting loans, while interest rates may change and impact affordability, lenders will still be lending, and loans granted even with the Brexit.