Great Britain’s vote to leave the European Union shocked the entire world. But not all of its consequences were negative. In the US, for example, mortgage rates dropped to historic lows.
Black Knight Financial Services analyzed the effects the new multi-year lows in rates had on the population of 30-year mortgage holders who could both likely qualify for and benefit from refinancing. At the start of August, the integrated technology, services, data and analytics solutions provider released its findings.
The data was published in the latest Mortgage Monitor Report, which was put together by Black Knight’s Data & Analytics division. It says that 1.3 million more borrowers can now benefit from a mortgage refinance. All due to the decrease in interest rates that followed the Brexit vote. As a result, the total number of potential refinance candidates in the US has now reached 8.7 million. It is the largest refinanceable population since late 2012.
“The reality is that, post-‘Brexit,’ mortgage interest rates declined by about 15 basis points – not significant in the grand scheme of things,” Black Knight Data & Analytics Executive Vice President Ben Graboske explained in a press release. “But for 2.8 million borrowers with current rates right at 4.25 percent, this modest decline was enough to put them 75 basis points above today’s prevailing rate, the point at which we consider a borrower to have incentive to refinance. Of these, 1.2 million also meet broad-based eligibility criteria — loan-to-value ratios of 80 percent or less, credit scores of 720 or higher and are current on their mortgage payments.”
These new candidates did not have an incentive last year to refinance. But the Brexit produced a nearly 50% increase in the number of borrowers with a newfound incentive to refinance. It could have a more pronounced impact on refinance applications and originations as these borrowers rush to take advantage.
Brexit and home affordability
Graboske also said that the reduction in rates should have also brought with it an increase in home affordability. However, home values continue to appreciate, at a 5.4% annual rate. These rising prices are now offsetting the bulk of mortgage savings.
“Purchasing a median-priced home today requires roughly 21 percent of the median household income; much less than at the height of the bubble, and below the 2000-2002 average of 26 percent. What we need to keep an eye on is what would happen if and when interest rates begin to rise again – especially if sustained low rates continue to fuel home price appreciation as they have. Even if prices stay flat – unlikely as that is – a one percent rate increase would push affordability to 24 percent, while a two percent rate increase would put affordability well above the 2000-2002 average,” Graboske said. “The question becomes, what is a sustainable ratio in a market where Qualified Mortgage lending is the norm and student loan and other non-mortgage-related debt is on the rise?”
Black Knight’s report also included other key results, such as: