While U.S.-based mortgage lenders (and borrowers) are expected to benefit from Brexit via lower mortgage rates, the opposite might be true across the Pond.
Over in the UK, we’re already seeing a lot of risk mitigation related to the uncertainty of Brexit.
I awoke to all types of headlines about LTVs being slashed, home buyers pulling out of their purchases, and more.
It totally makes sense, but also illustrates the polarizing effect of Brexit.
You Can’t Borrow as Much in Britain
Two large UK mortgage lenders, Kensington Mortgages and Fleet Mortgages, withdrew “their higher LTV products” in order to protect homeowners (ha!).
The article I read didn’t have all the details, but apparently 90% LTV was withdrawn, ostensibly because these lenders expect home prices in the UK to be under pressure as a result of Brexit.
Oh, and I like how they said the move was to protect the borrowers, when in reality, it’s to protect the bank from defaults related to underwater mortgages. But hey, that’s good marketing.
Despite the product changes, lending was booming in the UK, with Fleet Mortgages saying it saw mortgage applications quadruple on Friday, making it their “busiest day ever.”
Meanwhile, Kensington is working on new products to replace the loss of their high-LTV offerings.
You Can Get a Mortgage Rate of 0.99%
It’s no wonder business is booming despite Brexit because at least one lender, HSBC, is offering a “fixed” mortgage rate of 0.99%.
Yes, you read that right. A sub-one percent mortgage rate. The catch is that it’s fixed for two years before adjusting to who knows what. Although, if the turmoil continues, you could probably just refinance to another low rate before the adjustment came through.
The exclusive loan program also requires a 35% down payment (they say deposit) and a product fee of nearly £1,500. So it’s not for everyone, much like the good stuff we see stateside.
HSBC also has a five-year ARM set at 1.99%, which is also quite cheap but more in-line with the rates you’ll see in the U.S.
In fact, we might soon see hybrid ARMs like the 5/1 offered in the high 1% range. That’ll be a treat for borrowers.
Buyers Ditching Their Home Purchases
It’s not all good though – some home buyers are reportedly ditching their home purchases in the wake of uncertainty.
One individual told Bloomberg he was pulling out because, well, the UK is pulling out. I guess if they’re not sure neither is he.
The man said he was concerned about a recession post-Brexit, and plans to wait for a better deal as a result of the turmoil. Smart guy…
Another woman seems to be sure that home prices will go down (hence those LTV cuts), so she too will take a wait-and-see approach.
And those who recently purchases homes said they may have delayed the buy if they could do it all over again. I suppose it makes sense, knowing that a monumental event was set to maybe or maybe not take place.
Of course, it’s not always about the investment, some folks just want a nice home to live in for their family.
The takeaway here is that there’s lots of uncertainty, and it’s already washing up on our shores. For those looking to refinance, it’s likely going to prove beneficial. Let’s just hope it doesn’t dampen home prices in the process. Actually, maybe that would be a boon for buyers too.