In or out? How Brexit'¨would affect all of us

Mortgage rates may move up in the event of Brexit. Photograph: John Devlin

The value of pensions and investments fell sharply last week as new polls showed strengthening support for the leave campaign.

But while the alarm bells are ringing in financial markets and warnings are issued daily over the grim ramifications of Brexit, views remain divided over the immediate financial consequences of the UK leaving the EU.

We asked four leading experts to look past the politics and tell us what they think might really happen in the event of a Brexit vote:

Economy

Institutions such as the Bank of England have indicated a likely period of turbulence in financial markets and sterling; this has been echoed by the Institute of Fiscal Studies. Even the Leave campaign partially agrees but take a “No gain without pain” position.

It’s the ripple effect that is worth a further look. It seems pretty certain that David Cameron would be out of office in short order, but there is also a strong likelihood that George Osborne would find his position untenable too.

However, Boris Johnson and Michael Gove would have issues too, with Article 50 being the red button required to actually start the two- year separation. This may create more uncertainty than is currently anticipated.

The rest of Europe would fear further fragmentation (eg Spain and Catalonia) and would likely prove harsh negotiators on ongoing trading terms, making a major effort to divert major financial institutions from London.

Might this be the catalyst for puncturing the inflated London housing market, bringing home ownership back as a realistic option for the millennial generation?

And at the other end of the age spectrum, an isolated sterling might require higher interest rates to bring stability, in turn bringing relief to savers with cash in the bank, but currently much less income than they might have expected in the past.

William Forsyth, investment

manager and principal at Charlotte Square Investment Managers

Pensions

In the short term, stock market volatility could impact the underlying investments in pension funds and have a detrimental effect on deficits. If this were to continue for an extended period it would inevitably create worries for those companies still running final salary schemes and in some cases influence their willingness to continue supporting them.

On state pensions, continuance of the triple lock beyond 2020 might not be economically possible in the event of our leaving the EU.

But many commentators have observed that there is currently no commitment anyway beyond that date and that the long-term cost may not be sustainable in any event.

In a wider context it is estimated that around two million United Kingdom expats live in EU countries other than the UK, and currently their state pension and health care rights are protected.

Should we leave the European Union state pension benefits could be frozen, as is currently the case for British pensioners living outside the EU in a country where there is no reciprocal social security agreements under which state pensions are uprated (normally increased annually).

It is not clear whether a UK government would simply continue to allow state pensions to be increased, set up a new reciprocal arrangement with the EU or implement some entirely different measure.

Malcolm McLean, senior consultant at Barnett Waddingham

Investments

Whilst equity markets have already fallen to some extent to reflect the possibility of a leave vote, we believe that there will be further falls in both the UK and European equity markets as well as in the value of sterling if a leave vote is the outcome.

We still do not believe that we will vote to leave, but we have made several portfolio adjustments over the last six months in anticipation. Some of these calls have already paid off, such as an increase to our gold weightings, gilts and high-yield bonds, which we have now pared back to more neutral levels.

At present we have high cash weightings and higher levels of investment grade bonds than would be normal. We are underweight in developed world equities, especially the US, UK and Europe, with our preferred area being Japan. Our portfolios are more diversified than they have been at any point in our  14- year history.

We expect that the UK equity market will bounce if we vote to remain, but we believe that some protection is still sensible, given the unpredictable nature of the vote and the binary outcome. We still believe that the world is an uncertain place and that any gains will be muted.

Corporate earnings need to improve from here for us to be more positive on the outlook for equities into the longer term and as this is unlikely to be soon, we continue to have a bias towards credit in the short term.

Tim Wishart, senior investment director at Psigma Investment Management

Housing market and mortgages

There may well be a short-term shock in the market in the event of Brexit. Rates are likely to move upwards more rapidly as the Bank of England seeks to make the pound look more attractive while the world begins to understand the implications.

The housing market is driven largely by confidence, so we may see some initial nervousness while the long-term outlook becomes clearer. As mortgage rates rise the market will need to re-adjust somewhat and this could impact on transaction volumes.

Over the medium term I would be confident that it will adjust however, because the underlying fundamentals around the demand to purchase and own your own home remain strong. In addition, as long as the banks re-adjust quickly it can be argued that their desire to lend will return to recent high levels over time, maintaining what is a very competitive mortgage market.

This is a big question of course, as lenders feel nervous at the prospect of Brexit and will be vulnerable until their confidence returns.

Any suggestion of another Scottish referendum will have a similar impact on confidence to that we experienced two years ago, when house sales slowed for some time.

Any blow to consumer sentiment is not particularly welcome in what is at present a stable market; certainty and stability is what will best serve buyers and existing borrowers alike.

Antony Stackhouse, sales and operations director at First Mortgage