Britain is scheduled to leave the European Union in 100 days. Boris Johnson says he will meet the Oct. 31 deadline even if that means exiting without an agreement. And my mortgage deal is about to expire, meaning I have to renegotiate my house loan. So how should I navigate the biggest political and economic crisis facing Britain and its likely effect on borrowing costs in coming years?

A decade ago, the U.K. mortgage market was split roughly evenly between borrowers who paid fixed rates and those whose payments varied as the Bank of England moved its own base rate. Now, more than 90% of new loans are fixed-rate as borrowers increasingly opt for the certainty of knowing in advance how much they will have to pay each month.  

The most popular product is a two-year fixed-rate mortgage, which is what I have signed up for in previous years. But while the cost of borrowing in the market has declined as the prospect of a messy Brexit has dimmed the outlook for the economy, the cost of a home loan has remained stubbornly resistant to that downward trend.

There are a couple of reasons for that growing discrepancy between what lending institutions are charging homeowners for money and what market rates, specifically the swap rates that they typically use to hedge their exposures, are doing.

The first is a lack of competition. Lloyds Banking Group Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc were the three biggest lenders in both 2016 and 2017, with market shares of roughly 16%, 12.3% and 12% in both years. In fact, the entire top 10 ranking of mortgage lenders was unchanged during that period. With no sizable new entrants to the market, the figures for 2018 are unlikely to be much changed.

The second obstacle to lower borrowing costs is the Prudential Regulation Authority, the part of the Bank of England unit that oversees banking and insurance. It is wary about lenders seeking to gain market share by embarking on a price war. PRA Chief Executive Officer Sam Woods warned in May that he would be “watching them like a hawk” to ensure mortgage sellers don’t overly relax their lending criteria.

“Under previous normal market conditions, when swap rates took a sharp deviation, we could comfortably predict that fixed mortgage rates would follow suit after a three- to four-week lag,” says Darren Cook, an analyst at website With the regulator warning firms that they are under scrutiny, mortgage rates may not decline until it becomes clearer whether the Bank of England will actually cut official borrowing costs.

Borrowers may have to wait. The central bank continues to assume that Brexit will be an orderly process and has repeated its warning that interest rates may have to rise. But the futures market is taking the opposite view.

That pessimism looks justified. The National Institute of Economic and Social Research, for example, said this week that Brexit may already have driven the U.K. into recession. If the country leaves the EU without a deal, the U.K. will probably suffer a “severe” downturn, the NIESR said. That suggests there’s only one direction for borrowing costs if Oct. 31 arrives without either an agreement or an extension – the latter looking increasingly unlikely to be on offer from Brussels.  

In the past when my mortgage has come up for renewal, I have relied on the wisdom of crowds to guide my decision. Specifically, what the futures market says will happen to interest rates in coming years seems to me to be a more reliable guide than any guesswork on my part. And that suggests borrowing costs will dip by about 15 basis points in the coming year and rebound by 10 basis points in about two years – which, frankly, is not much help to me.

But all of this could change. Many lawmakers are implacably opposed to leaving the EU without a deal. The new prime minister could be forced to hold a general election in an effort to gain the country’s unambiguous backing for an exit at any cost. A second Brexit referendum could – possibly – see a vote to remain in the European Union, reviving animal spirits and the prospects for growth.

At this stage, your guess is as good as mine as to what will happen. As physicist Niels Bohr reminded us, making predictions is hard, especially about the future. Brexit means foretelling the path of U.K. interest rates is even more difficult than usual. Woe is me.

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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

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