At the end of last month, British voters made the shocking decision to exit the European Union, which rattled the stock market and sent U.S. mortgage rates into a nosedive. So how does Britain’s exit, aka “Brexit”, affect U.S. consumers?
Extremely Favorable Refinance Opportunities
The Brexit vote occurred on a Thursday and mortgage rates began their decline the next day, reaching three-year lows the following week.
But why? The uncertainty in Britain’s decision caused investors to unload riskier global stocks and purchase one of the safest bonds – U.S. mortgage bonds. It’s déjà vu for those who remember Greek’s debt crisis last summer.
Though we haven’t seen the numbers of the inevitable refi boom just yet, the Wall Street Journal reports that refinance applications are up 10 to 40 percent compared to this time last year.
Stock Market Volatility
Did you cringe when you looked at the stats of your retirement portfolio following the U.K.’s vote? You’re not alone. Britain’s decision caused the global stock market to lose a record-breaking $3 trillion due to a massive selloff, according to CNN.
On the bright side, a week post-vote, markets have rallied back to levels just below what they were pre-Brexit, but most economists agree that the stock market will remain volatile as the ripple effects of Brexit pan out.
Altered Outlook for Federal Funds Rate Hikes
At the beginning of 2016, the Fed was anticipated to bump interest rates four times throughout the year, but Fed Chair Janet Yellen said that concerns over Brexit had factored into the decision of leaving rates as-is at their last meeting.
“It could have consequences in turn for the U.S. economic outlook that would be a factor in deciding the appropriate path of (Fed) policy,” said Yellen.
The federal funds rate affects many areas of your finances from mortgage, credit card and home equity loan rates to your savings and retirement portfolio. Due to Brexit, many economists are predicting the Fed will hold off on another interest rate hike, with some predicting a delay until mid-2017.
Overall, global uncertainty over Brexit has a silver lining for U.S. consumers for the time being – extremely cheap home loans. This week, mortgage rates approached 50-year lows! If you’ve been on the fence of refinancing your current loan or switching from an adjustable rate mortgage to a fixed product, there may be no better time than the present.
Contact one of our mortgage bankers for refinance or purchase opportunities or click below to get pre-approved.