How Will Brexit Affect the Mortgage Market?

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Filed under: Brexit

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In the wake of last week’s Brexit vote in the UK, Wall Street took a tumble and lost most of the gains it had experienced in 2016.  What exactly does this mean for the status of mortgage rates here in the US?

Typically, when we see declines in the stock market, there is a “flight to safety” that occurs with investors taking their money out of stocks and moving it over into bonds, which are more stable in a volatile market situation.

With a strong influx of capital going into bonds, the next thing that happens is bond yields (the amount of interest paid to those who buy bonds) goes down.  This is a simple “supply and demand” effect – more people want bonds, then bond payouts decrease.

The domino effect then continues from bond yields into mortgage rates.  While there is not a direct correlation between bond yields and long term mortgage rates, they do tend to move in the same direction.  Therefore, lower bond yields lead to lower interest rates.

Now, since interest rates are already at historic lows, we shouldn’t expect to see shocking movement in a downward direction, but for those who are considering a home purchase or refinance, now looks like a great opportunity to move forward with those plans.

Beyond this, it is difficult to predict what the coming months will bring in terms of Brexit and the domestic markets.  In fact, you’ll find varying opinions among analysts regarding what’s in store for us in the near future.  As of Thursday morning, June 30, we’ve already seen the Dow gain back much of what was lost earlier in the week so the end result could be minimal.

If you’d like to discuss this topic or anything else mortgage related, give me a call or shoot me an email!

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