The U.K.’s decision to leave the European Union, a.k.a. Brexit, in late June has had an immediate effect on the number of homeowners who can qualify and benefit from a mortgage refinance, according to Black Knight Financial Services’ June 2016 Mortgage Monitor [1] released Monday.
Even though post-Brexit mortgage interest rates have declined by only about 15 basis points, they still remain low (the average 30-year FRM was 3.48 for the week ending July 28) and has now been below 4 percent for a year. But even the 15 basis point decline post-Brexit has increased the number of refinance candidates by 1.3 million borrowers.
About 45 percent of borrowers with a 30-year mortgage (about 18.5 million) currently have an interest rate between 3.5 and 4.5 percent, while about one-quarter (9 million) have rates between 4 and 4.5 percent, according to Black Knight. For the borrowers sitting right at a 4.25 percent interest rate, the 15 BPS post-Brexit decline pushed about 2.8 million borrowers “into the money”; more than 1.2 million of those borrowers meet refinance criteria, Black Knight reported.
According to Black Knight, the 8.7 million refinance candidates in the market today are the largest such population in nearly four years.
“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 said. “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—bringing the total refinanceable population to 8.7 million, the highest level we’ve seen since late 2012.”
Black Knight found in its March 2016 Mortgage Monitor [2] that 66 percent of borrowers who could have qualified for and had the incentive to refinance in the spring of 2015 did not do so. The difference between those candidates for refinancing and the current population of borrowers qualified to refinance is that the current population did not have an incentive to refinance last year.
“This has produced a nearly 50 percent increase in the number of borrowers with newfound incentive to refinance, which may well be creating a more pronounced impact on refinance applications and originations as these borrowers rush to take advantage,” Graboske said.
Click here [1] to view the June 2016 Mortgage Monitor.