Brexit Vote Raises Rates Slightly; Long-Term Impact Up in The Air

/blog/brexit-vote-raises-rates-slightly-longterm-impact-up-in-the-air/

As of Thursday, June 23, all we can really do is sit and wait, as one of the biggest events in recent international government unfolds in the UK. Citizens across the pond are currently voting in a referendum to decide whether their nation should remain in the European Union or make a “Brexit.” Believe it or not, the fallout from a British exit will have a significant impact on finance in the United States, and lenders are behaving accordingly, preparing for the possibility that Britain’s economic arrangement could change in the near future.

The unease in the UK is palpable on Wall Street. No one really knows what impact “Brexit” would have on companies trading in the region. Most are wary however, assuming that a shakeup in policy would have a negative impact on share prices. That, in turn, would encourage The Fed to continue its conservative approach to interest rates.

The opposite is also possible. If Britain were to end up staying in the EU, the U.S. stock market could rally around it, which could inspire The Fed to raise rates instead…which would raise mortgage rates as well.

At the moment, the earliest point at which federal rates could increase seems to be July. Stay tuned.

For the time being, lenders are at least behaving in cautious preparation for an increase. The benchmark 30-year fixed-rate mortgage rose from 3.69 percent to 3.73 percent this week (among large lenders, based on Bankrate’s survey).

This may seem like bad news for potential applicants but, taken in more general context, things are still looking good. The rate at this point last year was 4.16 percent, and even four weeks ago it was at 3.82 percent.

Mortgage applications increased 2.9 percent last week as a result of the lowest rates in three years. That doesn’t necessarily mean a dramatic rise in home sales, however, as more than 57 percent of those applications were for refinancing.

The Brexit vote and its impact may lower the application rate, but so would anything (2.9 percent is dramatic). Expect refinancers to keep coming, regardless of today’s vote.