Brexit-Driven Refinancing Surge Hits the US Housing Market: What It Means for Real Estate Professionals

While the typical American home may be an ocean away from London, it could be affected by turbulent politics overseas. June’s controversial “Brexit” vote, in which Britain voluntarily withdrew from the European Union, has caused the Pound to plummet — taking U.S. mortgage rates with it.

By the Numbers

Interest rates have been consistently low throughout America as the economy recovers from the 2008 recession. However, many homeowners have built up considerable equity in their property thanks to a simultaneous rise in home prices. With the average 30-year fixed mortgage rate approaching all-time record lows, refinancing is proving an attractive proposition to those who want to tap into that equity or take advantage of favorable interest rates.

Lender Considerations

The brunt of the financial impact is likely to fall on lending entities, as well as those who have invested in mortgage-backed securities (MBS). Refinancing reduces MBS’s profitability due to the investment’s shortened term. Similarly, a newly busy market will reduce business for mortgage loan servicers as borrowers refinance out of their existing contracts and into new ones serviced by different entities.

Looking Ahead

While profit margins for mortgage operators are shrinking, the closing pace is quicker than ever. Applications for both refinance and new purchase loans are vigorous, and overall housing demand is strong as well. This is a potent combination for the market: new buyers have the incentive of favorable interest rates, while high demand means current owners are finally in the position to sell after waiting through the housing crisis.

Lenders and mortgage professionals should be prepared for a busy season ahead, as rates are predicted to stay low for the foreseeable future. 10-year Treasury yields, a key metric in determining interest, fell to a record 1.366% immediately following Brexit. They have since rebounded and are hovering slightly over 1.4%, an unimpressive but stable figure.

Despite the low yield numbers, overall interest rates are stable for the time being. Increased federal oversight and regulation efforts have intensified since the last time the economy found itself in this situation, creating internal costs that offset the dip for consumer-side prices.

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