Why a Brexit Could Mean Lower Interest Rates For Homebuyers

• June 24th 2016

by UrbanTurf Staff

Long-term interest rates have been below 4 percent since the beginning of the year, and in the last two weeks, rates hit their lowest level since 2013. So, does the United Kingdom’s exit from the European Union mean that rates will fall even lower?

A quick primer on what influences interest rates. Long-term interest rates are tied to the yield on ten-year U.S. government bonds. Those bonds are tied to the Federal Reserve’s lending rate. So, when the Fed moves rates up or down, the interest rates on new home loans often follow suit.

At the end of last year, the Fed raised rates slightly and intimated that it would raise rates again in 2016. That has not happened, and on Thursday Fed Chair Janet Yellen indicated that if the U.K. voted to leave the EU there would be “significant economic repercussions.”

In the immediate aftershock of the Brexit vote, the uncertainty could trigger a “flight to quality,” meaning capital floods into safe U.S. treasuries, temporarily pushing rates down on those and, by extension, mortgages.

In the medium term, and more relevant to DC homebuyers, is whether Brexit causes persistent economic uncertainty in Europe. This seems likely. The Fed, in an effort to avoid rocking the world’s economic boat, will keep rates low in that case. This would mean mortgage rates stay low or perhaps go lower.

This article originally published at https://dc.urbanturf.com/articles/blog/why_a_brexit_could_mean_lower_interest_rates_for_homebuyers/11400.