THE LATEST U.S. INTEREST RATE RISE

4 FACTORS TO WATCH

There are 4 Factors to watch as the market reacts to the interest rate rise.

1. Affordability

Firstly, it is important to understand that interest rates are a key factor in determining the affordability of a mortgage. When interest rates rise, the cost of borrowing money also increases, which can significantly impact monthly mortgage payments. For example, a 1% increase in interest rates could increase the monthly mortgage payment on a $300,000 mortgage by around $200.

2. Demand

Secondly, rate rises can impact the demand for mortgages. Some potential borrowers may delay buying a home or refinancing their mortgage when interest rates rise. Higher interest rates can make it more difficult to afford a mortgage or reduce the money borrowers can borrow. This, in turn, can reduce mortgage demand, which could impact the housing market.

3. Availability

Thirdly, rate rises can also impact the availability of mortgages. Lenders may tighten their lending criteria when interest rates rise to reduce their risk exposure. This means that some borrowers may find it more difficult to obtain a mortgage or may be required to pay a higher deposit or meet more stringent income and credit requirements.

4. Profitability

Finally, rate rises can also impact the profitability of mortgage lenders. When interest rates rise, lenders may need to pay more to borrow money themselves, which can impact their profit margins. This, in turn, can lead to higher mortgage rates for borrowers.

Conclusion

We must remain vigilant in our industry to understand the impact of the rate rises against these four elements. We already have seen a decrease in demand, though, over the past few months, we started to see a small revival from the depths of winter,  as mentioned in this other article from CNBC. Anecdotally we have seen this increase in our clients too.

In addition, lender stability has been questioned with the latest failure of First Republic, and as point 4 notes, the rate rise will increase pressure on profitability.

Having said that, an expectation of lower inflation for the latter half of the year and the expectation of the end of rate rises should mean that we should see a stronger housing market from the summer.

In conclusion, rate rises can significantly impact the mortgage market. They can impact the affordability and demand for mortgages, the availability of mortgages, and the profitability of mortgage lenders. However, it is essential to note that rate rises are not the only factor that impacts the mortgage market. Other factors like employment rates, house prices, and government policies can also shape the mortgage market.

In this volatile market, ensuring you thrive as a broker means being nimble in your operations, frugal in your cost structure, and focused on your borrower experience to stand out. We aim to partner with you to help you succeed in any market. To learn more, click below to book a demo.