Why Do the Mortgage Markets Hate Uncertainty So Much?

Why Do the Mortgage Markets Hate Uncertainty So Much?

Clock  3 minute read

Carl Shave Carl Shave | July 16, 2016


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Following last month’s historic ‘Brexit’ vote, we’re actually none the wiser as to how this landmark decision is actually going to affect the UK. At the moment, it’s uncertainty that reigns supreme. The pound is down, the FTSE is up, and growth forecasts are being looked at once again. With nothing solid to go on, it is this underlying uncertainty the markets hate the most. In terms of the property market, predictions before the EU referendum were that a vote to leave would see housing prices plummet and mortgage rates soar, but following the vote, will these predictions come to fruition?

The role of uncertainty

Uncertainty is something that every market dislikes and the mortgage market is no different. At the moment, there are far more questions than answers in a market that has yet to really show its hand. Will prices rise or fall, and by how much? Should prospective property buyers rush in and buy now or wait to see how conditions change? In which direction will interest rates go in the longer term? Would a recession damage your ability to make mortgage repayments? At the moment, this uncertainty in the market is shared by homebuyers and property investors, which means for the moment, many are delaying their decisions about whether to buy or sell. Of course, this inactivity in itself is likely to have an effect.

The impact on…

Interest rates Following the shock EU referendum result, the Bank of England decided to keep interest rates at 0.5%, which indicates that for now, the property market is stronger than had been expected. However, the uncertainty that currently plagues the housing market is likely to result in a ‘significant weakening’ of activity that could make a 0.25% cut in interest rates possible next month. House prices Over the longer term, experts are predicting a slowdown in the growth of house prices over the next couple of years. Accounting firm KPMG has forecast a drop of up to 5% across the UK, with a little more in London. However, as yet there has been very little movement to report. Rightmove’s monthly house price report, which covers the 4-week period before and after the referendum, has remained steady when compared to the same period in previous years.

Uncertainty can bring opportunity

In the mortgage market, it’s clear there’s still plenty of uncertainty ahead, but managed correctly, uncertainty can lead to opportunity as well as risk. Even though levels of uncertainty have risen, the good news is the markets have continued to function properly. The pound fell and stabilised, while the FTSE suffered an initial crash before reaching an 11-month high. At the moment, it seems any changes in the mortgage market are likely to be gradual, bringing some confidence to homebuyers and sellers. If you’re looking to capitalise on the record-low interest rates, speak to our mortgage experts about your options today.