Lending costs are about to increase. The government proposed tightening lending standards, which created quite a stir. The Quality Residential Mortgage (QRM) feels strongly that standards must be raised. It will cost a home buyer more to borrow in order to buy a home.
The J.P. Morgan brand is used by the investment banking as well as the asset management, private banking, private wealth management and treasury & securities services divisions. J. P. Morgan issued a complete study called the Report on Securitized Products. According to this research mortgage rates could increase by 3%. J.P. Morgan said: “…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…” He also added that the banks could be satisfied with a smaller return. He said: “This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”
If one assumes that the interest rates can increase by 2%, it would bring the rate to 6.5%. Due to an increased interest rate of 2%, a mortgagor will pay $90,200 more on a mortgage of $200,000 over a period of 30 years.
Many potential home buyers are struggling to qualify for home loans due to the tightening of lending standards. It is difficult to take advantage of the low interest rates and low home prices. To prove sufficient income and steady employment became more demanding. Small bank account deposits and new credit cards have to be explained and assets must be verified. Tight home loan credit affects home sales as well as household finances. In future it will be a challenge to obtain a home loan as the standards to qualify for such a loan are about to tighten even more.
