Brexit- Will it affect your home loan rate?

The short answer is yes.

The long answer is that 17.4 million people in the UK voted to leave the EU.

16.1 million voted to stay.

Moodys a rating agency, rates public companies, banks, and world economies has recently downgraded the UK to a rating of Aa1.

In comparison Australia is rated AAA.

The result of Brexit, is economic uncertainty throughout the world. For instance the UK is not a major purchaser of Australian goods or services but the EU is a major buyer of Chinese goods. If Europe slows, that could slow China’s growth which in turn could see China buying less goods and services from Australia.

How does this affect interest rates in Australia?

Because of the uncertainty that Brexit has caused, the yields on the Australian government 10 year bond (a safe haven for international investors) dropped last week to a record low of 2.03%. This is an indication of a Reserve Bank interest rate drop. But when? The next three months?

I believe interest rates will come down before they go up again. There is at least 1 interest rate drop perhaps two within the next 1-2 years. Then if all goes well and yields increase, so will interest rates.

What am I going to do?

I am going to stay variable and not lock in my rate.

‘AAA’s home loan rate is 3.74% variable, which allows business and households to take out cash of up to 80% of the value of the property for business, investments and consolidation. It also includes a 100% offset account.

Until next time,

John