What Will Be the Lasting Impact of Brexit on US Mortgages?

by Steve CookOctober 13, 2016

Although Britain will not actually implement June’s Brexit referendum to leave the European Union until next March at the earliest, it has already made a major impact on US mortgage rates. Will the long term impact of Brexit be as significant?

Within days of the referendum, uncertainty about the potential impact of Brexit on European economies caused investors to sell riskier global stocks and buy safer U.S. mortgage bonds – which are among the safest bonds in the world because they are comprised of U.S. home loans. When this unexpected demand drove up the prices of mortgage-backed securities, bond yields fell and drove down mortgage interest rates.
United Kingdom and European union flags combined for Brexit - Lo
Mortgage rates for 30-year loans dropped to their lowest in more than three years following the referendum. Lower rates made mortgages less expensive, sparking a 20.8 percent increase in refinancing applications in the week ended July 1, the highest level since January 2015, according to the Mortgage Banker Association.

Three months after the Brexit vote, mortgage rates remain near the three-year low. At its September meeting, the Federal Reserve decided once again not raise rates, which most experts believe will keep rates at Brexit-inspired lows for the near future

“In most markets, low mortgage rates have more than offset the rise in house prices, preserving homebuyer affordability for the typical household. Homeowners are also taking advantage of low rates and house price appreciation that is increasing their home equity. The share of cash-out refinances grew to 41 percent in the second quarter of 2016, compared to 38 percent in the first quarter and 15 to 20 percent during the housing crisis”, said Freddie Mac’s Sean Becketti in late September.

Many experts believe the greatest impact of Brexit on US mortgages have already been felt, though, in Europe, uncertainty persists. The actual withdrawal of Britain will take two years or more and may not be completed until 2019.

UK real estate markets also may remain unsettled for months to come. Several open-ended real estate funds that hold U.K. properties either blocked withdrawals for six months after the Brexit vote or made them costly by raising fees. The vote sent shivers through the real estate market and caused an asset run on property funds.

“Any effects of the Brexit vote on the overall U.K. economy, negative or otherwise, will take many months if not years to transpire, and sometime after that for the property market,” Don Jordison, managing director of property at Columbia Threadneedle Investments, said in a statement, the Wall Street Journal recently reported.

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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.

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