Black Knight Financial Services released its latest Mortgage Monitor today, showing the post ‘Brexit’ effect on consumers.
The report that was based on the end of June 2016 data noted that 8.7 million homeowners may now be eligible to refinance, which is the highest level in approximately 10 years. 1.2 million borrowers with 4.25 percent interest would benefit from a refinance just two weeks post-“Brexit”. However, mortgage savings are being offset by rising home prices.
Auto loans are one of the major debts and the highest on record for mortgage borrowers with $531 billion total. Black Knight said that borrowers seriously delinquent on auto debt are eight times more likely to be behind on mortgage payments.
4.% of homeowners who do not have auto debt are more current on their mortgage payments than borrowers with auto debt of whom 5.8% are delinquent.
Black Knight Data & Analytics Executive Vice President Ben Graboske said this about the latest report,
“The reality is that, post-‘Brexit,’ mortgage interest rates declined by about 15 basis points – not significant in the grand scheme of things. 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.
However, unlike the 66 percent of borrowers Black Knight identified a few months ago, who could have both likely qualified for and had incentive to refinance in the spring of 2015 but for whatever reason didn’t do so, the vast majority of these new candidates did not have such incentive 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.
“At the same time, the 55 BPS reduction in rates we’ve seen over the first six months of this year would normally have done a great deal to increase home affordability ratios. All else being equal, the monthly mortgage payment on the average-priced home should be approximately $63 less per month than it was at the end of 2015. The post-‘Brexit’ decline alone would have decreased that payment by about $15 per month. However, as home values continue to appreciate — at a 5.4 percent annual rate according to the most recent Black Knight Home Price Index report – the bulk of mortgage savings are being offset by rising prices.
Purchasing a median-priced home today requires roughly 21 percent of the median household income; much less than at the height of the bubble, and below the 2000-2002 average of 26 percent. What we need to keep an eye on is what would happen if and when interest rates begin to rise again – especially if sustained low rates continue to fuel home price appreciation as they have. Even if prices stay flat – unlikely as that is – a one percent rate increase would push affordability to 24 percent, while a two percent rate increase would put affordability well above the 2000-2002 average. The question becomes, what is a sustainable ratio in a market where Qualified Mortgage lending is the norm and student loan and other non-mortgage-related debt is on the rise?”