Is There a “Trump Effect” on the UK Mortgage Market?
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Is There a “Trump Effect” on the UK Mortgage Market?

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Carl Shave Carl Shave | December 9, 2016

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If Brexit was a shock for many people, the result of the US presidential election was seismic. And, just as Brexit is having an effect on the money markets and wider economy, so is the American election result – and not just in the USA, but globally. Immediately after the results were announced the Asian, European and UK markets fell – although they have since largely recovered. The election result – and President-elect Donald Trump’s pledge to inject $1 trillion into the US economy – has already had a detrimental impact on the global bond market, which by 14 November had seen a drop in value of $1 trillion. In addition, individual companies have felt the impact of the Trump effect – both Boeing and Lockheed Martin saw stock values drop following disparaging tweets by the president-elect.

Is there a Trump Effect on Mortgages?

As far as mortgage interest rates were concerned, US rates rose almost immediately, jumping by almost half a percentage point in the week following the election. In addition, a warning was sounded with regard to the Trump effect on Canadian mortgage rates, with further rises expected. Thinking about things closer to home, what are the implications of Trump’s election victory for UK mortgages? Mortgage rates in the UK, and elsewhere, are affected by the global markets. We just need to consider the triggers of the 2007–2008 financial crisis to realise that what happens in the US can affect the banking industry – and therefore the mortgage market – in the UK. The Guardian’s advice following the US election result was to fix your mortgage rate as soon as possible. That was based on the fact that mortgage rates, according to the Council for Mortgage Lenders, had reached a “historic low”, but are expected to rise.

Will Trump Force the US Central Bank’s Hand?

Trump’s promised tax cuts and spending on infrastructure are expected to force the US Central Bank to raise interest rates faster than had been planned. It is this that affected the bond markets and US mortgage interest rates, and that is threatening the UK mortgage market. The price of fixed-rate mortgages, in particular, is largely determined by “swap rates” – those are the rates banks pay to borrow from each other, and they have shown a marked increase since Trump’s win. Some UK industry analysts are of the opinion that the price of longer-term (5-year and 10-year) fixed-rate mortgages will be the first to go up. Immediately prior to the EU referendum, HSBC launched an astonishingly low 0.99% fixed-rate mortgage. That has now been withdrawn, due – according to The Times – to the Trump effect. The newspaper echoes the opinion that the need to raise finance for the Trump administration’s planned infrastructure spending is driving up global money market rates. Of course, Trump’s victory won’t be official until the electoral college vote on 19 December and, considering the dissatisfaction expressed in some quarters as to his fitness for office, there’s a slim chance he might never get so far as to be sworn in. Should that happen, it might be impossible to predict what the effect on mortgage rates will be.