Curve

Brexit pushes mortgage rates to 13-month lows. What mortgage shoppers should do now

Peter Miller
The Mortgage Reports contributor

Brexit mortgage rates

There’s no such thing as a Brexit mortgage but maybe there should be, especially if you like lower mortgage rates. Rates in mid-March hit 4.31 according to Freddie Mac, their lowest level since February 2018. We can thank the Brexit debacle, at least in part.

You can’t say that mortgage rates move up or down for only one reason; the marketplace is more complicated than that.

What you can say is that the Brexit impact is increasingly visible.

As Sam Khater, the chief economist at Freddie Mac explained in mid-March, “mortgage rates declined decisively this week amid various market reports, a strong bond auction and further uncertainty around the Brexit deal, which all contributed to driving bond yields lower.”

Mortgage shoppers who have been hoping for lower rates are seeing their patience pay off.

Shop today's low rates with top lenders here. (Apr 26th, 2019)

Why are rates dropping?

The more Europeans argued about their alliances and markets, the more investors worldwide became nervous.

Rates tend to drop in uncertain economic times.

If investments in the United Kingdom and the Continent are increasingly iffy then surely there must be a less risky place to park capital. One good alternative is the US, a place where homeowners pay their mortgages with remarkable certainty and the Dodd-Frank Act has driven excess risk out of the marketplace.

The result, according to ATTOM Data Solutions, is that 2018 foreclosure filings were at a 13-year low and home-seller profits reached a 12-year high of $61,000 per transaction.

For investors, the US mortgage market is a joy to behold. Mortgage rates are falling because investors “flee” to invest in safe assets like the US mortgage bond market.

Access today's dropping rates. (Apr 26th, 2019)

What is Brexit?

Before deciding how events in Europe might impact your decision to borrow or not borrow — or whether to lock-in a mortgage rate or not lock – you need to know about Brexit and why it’s important to real estate borrowers.

We live in an increasingly interconnected world. For better or worse what happens far, far away can impact borrowing costs on Main Street.

A revolt in a small country, the discovery of oil in a new location, or a surprise nuclear missile test can each set off investor alarms. The same is true with Brexit.

Brexit is one of those strange and curious things now taking place thousands of miles from any US coast.

Brexit is short for the proposed “British exit” from the European Union (EU). The EU is currently a group of 28 countries which banded together to give member-nations more political and economic power.

The idea was to create a huge internal market, ease travel between countries, and build a vast single market as we have in the US.

Brexit pros and cons

So far this all seems logical and not especially related to US mortgage rates. However, in 2016 Britain voted to leave the EU. The vote showed that 51.9 percent wanted to move on while 48.1 percent preferred staying.

If you’re wondering why a lot of Brits wanted to leave the EU you’re not alone. More and more of them are asking the same question.

Part of the reason for the “let’s get out of here majority” concerned complaints about unfair treatment at the hands of the EU. According to the BBC, 10 of the 28 EU members pay more to the EU then they get back. One of those ten nations is the UK. Another complaint was that the UK was sending £350 million the European Union, £50 million a day that could be spent on the country’s national healthcare system. This claim, it later turns out, was bogus according to the Independent.

Those who wanted to stay in the EU also had an argument. The British economy shrank. It went from being the fifth largest in the world to sixth after the Brexit vote. It suddenly trailed France!

None of this was good for investors. They were now looking for a place to store their money and now Europe was increasingly unattractive.

A “flight to quality” occurred in which investors sank money into US mortgages — a very safe asset historically. This continues to drive down mortgage rates.

Brexit 2019

About the best that can be said for Brexit in 2019 is that the follies continue.

So far this year the British parliament has twice rejected the efforts of Prime Minister Theresa May to leave the EU by March 29th. As this is written in mid-March it is unclear what happens next. Will the March 29th date be extended? Does the EU want and extension – and at what price? Will the whole idea be shelved?

If you’re a potential mortgage borrower, this is great news. It means more money – more supply — is likely coming to our mortgage marketplace because the UK and Europe could face months if not years of financial contortions.

Should you lock in today’s rates?

If you are now in the market for mortgage financing you have the option of locking in today’s rate or letting it float until closing. Given the turmoil in Europe, some might argue that floating is a good idea.

Alternatively, there is always the possibility that something distressing can happen elsewhere, driving up mortgages rates.

If you’ve been waiting a long time until your mortgage refinance pencils out, this might be your chance.

Verify your new rate (Apr 26th, 2019)