How does the interest rate develop in July? Read our mortgage interest forecast for this month. In it more about the consequences of the Brexit for the mortgage interest.
The central bank is waiting
The European Central Bank (ECB) has been keeping policy rates unchanged since March. The central bank is awaiting the effect of the ongoing crisis measures. In addition to government bonds, the ECB has been buying corporate bonds for the first time since June. This extensive buy-out program puts additional pressure on the capital market interest rate. As a result, the mortgage interest for the long-term fixed-rate periods fell slightly in June.
British vote for Brexit
On 23 June, the British voted, with a small majority, for a departure from the European Union. The Brexit camp celebrated, the prime minister stepped up and the plummeted stock markets. However, the precise consequences of the results only become clear slowly. For example, negotiations on the new status of Britain in the EU will take months.
More uncertainty after Brexit
Instead of clarity, the result of the referendum has created more uncertainty. This was the reason for credit rating agencies to lower Britain’s creditworthiness. The British have lost the highest creditworthiness status. This makes British government loans less attractive for investors who do not invest in Pounds.
Due to the uncertainty after the Brexit, investors are looking for safe investments. Government bonds are therefore popular, especially from countries with a high credit rating. This decreases the capital market interest rate in these countries. For example, the interest rate for a 10-year Dutch government loan has fallen to a historic low after 23 June.
Mortgage interest expectation in July
The capital market interest rate is an important indicator of the mortgage interest rate for the long-term fixed-rate periods, for example 10-year fixed-rate interest. We therefore expect that the long-term interest rate in July will remain at the current low level or fall slightly further. The short mortgage interest rate will also remain at the current low level.
Interest rate increase further away
The uncertainty surrounding the Brexit also inhibits economic growth. Companies postpone investments and shares are worth less. Not only in Great Britain, but worldwide. At the beginning of June, the ECB came up with an increase in growth forecast from 1.4 to 1.6%. Now analysts are seriously considering a slowdown in growth.
As a result, an interest rate increase, which needs economic recovery, is further away. The question is what extent the ECB can continue to wait. ECB President Draghi has repeatedly called for every effort to be made to achieve the objectives for economic growth in the Eurozone. New measures from the central bank are therefore not excluded.
We discuss the long-term interest rate development in our mortgage interest rate expectation for 2016.