When the Brexit vote confirmed Britain’s exit from the European Union, many experts were quick to predict gloom and doom. Britain, and even Europe, would collapse, eventually dragging down the US and the rest of the world. But nearly three months after the fact, none of those dire predictions have played out. But closer to home, how will Brexit affect your mortgage rate or new home loan?
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It’s hard to make an accurate prediction, but there are some reasons why we might expect a more positive outcome, at least at this stage of the game.
What is Brexit?
On June 23, 2016, a referendum was held in the United Kingdom to determine whether or not the country would remain a member of the European Union. By a count of 52% to 48%, British voters cast their votes for exiting the EU. The term “Brexit” is derived from a combination of the words “Britain” and “exit”, and became the colloquial term used to describe the referendum process.
Though the country voted to leave the EU, that was just the beginning of what promises to be a very long process. Though it was originally projected to take two years, little constructive action has been taken thus far, indicating a much longer time table.
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The implications of Brexit are most acute in the UK, as the country will work to gradually disentangle itself from the EU rules and regulations that have largely been governing its economy and finances for nearly 20 years.
Though many have predicted that a favorable Brexit vote would lead to national and even global disaster, none of that has happened as yet.
The Implications for the US Economy
The impact of Brexit on both Britain and on Europe is still unclear, but potentially negative. But that’s not necessarily true for the US.
The consensus is that the fallout from Brexit is more likely to help the US economy. That’s because any disruption to the economies of either Britain or the European continent is likely to be positive in the US.
The thinking is that instability in Europe will cause capital to flow into the US. That will prop up the stock market here, and provide additional capital to the bond market. That should not only keep interest rates on the low side, but it will eventually spill over into the consumer economy, where it should keep US growth steady.
The Impact of Brexit on the US Housing Market
At least some of the capital flowing out of Europe and into the US will end up in the real estate market. The primary beneficiaries of that flow are likely to be the high-cost markets on the US coasts, at least initially. This will increase real estate prices in markets such as New York, Washington DC, San Francisco, Los Angeles and other expensive markets.
But as prices rise in those cities, both Europeans and Americans are likely to move out to less expensive cities over time. As that happens, the national housing picture is likely to get stronger.
The Impact of Brexit on US Mortgage Rates
Back on June 22, the day before the Brexit referendum was held, 30 year fixed rate mortgages were available in the US with an APR of 3.80%. As of September 6, they are available at 3.57%. This indicates a gradual decline in mortgage rates since the Brexit vote took place.
Clearly, if Brexit had any effect on US mortgage rates at all, it was positive. Rates are now nearly a quarter percent lower than they were just before the referendum was held.
Since not much has happened regarding Britain’s departure from the EU since the referendum was held, the impact has likely been minimal. But we should expect to see an acceleration of the trend as exit activity increases. This would seem to favor a continued gradual decline in mortgage rates as events play out.
Of course, since little has happened in connection with the exit, it’s also entirely possible that rates could also take a slightly higher trend.
Should Brexit Affect Your Decision to Buy or Refinance in 2016?
There’s no way to tell what effect, if any, that Brexit will have on mortgage rates going forward. Though rates have fallen nearly a quarter percent since the referendum passed, it’s not certain that Brexit was the cause. It’s not even certain if Brexit will have an impact on mortgage rates at all, and if so how much.
What we do know at this point is that mortgage rates continue to be near record low levels. That makes now as good a time as ever to purchase a home or to refinance your current mortgage. Rates have never been better, and we can’t know what they will be in the future.