There is a lot of concern about the UK leaving the EU and what impact that might have on household finance. Borrowing can be a particular worry because if borrowing gets more expensive then it may become unmanageable for many and this means that they could get into a lot of financial trouble. There are a lot of possible scenarios as no one is sure of what the impact could possibly be but it is worth considering a few possibilities and thinking about how to protect yourself against these.
Interest rates go up
Interest rates are set by the Bank of England and they put these up when they feel that inflation is going up too much. Inflation is a measure of how much prices are rising and the bank of England feel that prices should rise at about 2% in order to keep the economy growing at a stable rate. Therefore if it rises more quickly then they will increase the interest rates in order to limit how much money people have to spend. This limits them because they will not only be paying more interest on loans and therefore have less available to spend on other things but encourages people to save as they will be getting a good return on their savings. Then spending should reduce a little and the inflation not rise too much. It is hard to predict what might happen but if we have to pay import duties on more things then it is possible that prices will go up.
Of course, people who have a lot of debt could really struggle financially if rates go up so it is wise to be prepared by making sure that your costs are the lowest that they can be and that if you can, you put some money aside in case things get more difficult later. Compare prices on everything you buy, only buy necessary items and get into the habit of spending wisely so that you can continue this if the rates do go up.
Borrowing is more difficult
It is possible that if there is uncertainty in the economy that banks will be more cautious about lending. They may not want to take too many risks and so it may get harder to borrow money. This could be difficult if you want to get a mortgage, for example. Making sure that your credit record is as good as possible and saving up a good deposit should help you and even if borrowing is not harder, it will still help you and ensure that you are more likely to be accepted for a mortgage and get a good rate.
Interest rates go down
There is the possibility that inflation may go down and then interest rate will also go down in order to cause the growth to go up. In this case it will mean that borrowers will have to pay less in interest and this could mean that they end up with more money to spend on other things. This will of course depend on whether their lender decides to lower their interest rate to follow the drop in base rates as well as whether they are on a fixed rate, which will not change or a variable rate.
Borrowing is easier
It could be possible that borrowing becomes easier. Once the period of uncertainty passes, then it could be that banks want to start to lend more money and it could therefore be easier for anyone to get a loan. Whether the rate of borrowing is favourable though will depend on the interest rates.
It is therefore very difficult to know what impact Brexit will have on borrowing. There are all sorts of possibilities and so it is best to be prepared for the worst. If you have loans, then prepare for rates going up just in case. If rates go down then you will have nothing to fear but if rates go up then you will need more money to pay for things and so it will be important to make sure that you have a plan for this.
The prospect of being able to borrow more or less easily could also be an issue. If you think that you might want to borrow, perhaps getting a mortgage to buy a home or some other type of borrowing then you will need to be prepared if borrowing is going to be harder. Do what you can to make sure that you have a good credit record and that it is accurate. Then make sure that you are not spending more money than you need to so that if possible, you can save some or at least not borrow more than you need. Then you will be prepared should borrowing be tricky or rates be higher.
If borrowing becomes easier then you also need to be prepared. You need to be sure that you are not going to be tempted to borrow more money then you should just because it is easier. This will mean that you will need to be prepared to have good self-discipline so that you do not borrow just because you can but only borrow if you really ned to. Otherwise you could end up getting it all sorts of debt and find that you struggle to make the repayments.