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Could Greece Debt Affect Future UK Mortgage Rates?

The financial troubles in Greece have caused uncertainty in the stock-market and financial ripples worldwide.

Despite being a small country the potential for Greece to exit the eurozone and default on massive debts could clearly have a huge impact on the global financial market.

The country has been in difficulty since 2010 after gaining huge debts during good economic times, which it could not afford to pay back in the more difficult past few years.

The eurozone had already provided Greece with a number of financial bailouts that have come with conditions requiring economic reform and spending cuts. Despite these terms Greece has still not made any significant reduction in its debts and the austerity imposed on the country has caused sweeping unemployment. This has compounded the problem further, and prevented any sort of economic recovery and financial growth.

Things came to boiling point after the Syriza party was voted into power earlier this year promising to end the tough financial times and negotiate much better terms with the eurozone creditors. However after months of talks the eurozone offered a final deal to Greece demanding that the country makes spending cuts of 8.5bn euros.

The response from leader of the Syriza party and current Greek prime minister Alexis Tsipras was to announce a referendum to let the people vote on whether or not to accept the deal or to default on their debts – effectively meaning Greece would leave the euro.

The vote to accept or say no to the terms laid down by the eurozone came back on Sunday with an overwhelming majority of 62% rejecting the proposals.

However with the eurozone seemingly unwilling to budge as the deadline got nearer, prime minister Alexis Tsipras crumbled under the pressure and made a dramatic u-turn ignoring the 'no' vote from the referendum and preparing to sign up for a deal that will enforce even greater spending cuts of 12bn euros. This about turn has caused anger and demonstrations in Greece, and with several eurozone parliaments still to approve the new bailout, there are still a lot of doubts to whether the deal will go ahead and there is still a slim possibility that Greece could yet leave the euro.

Specialists in Construction Insurance

If that were to happen the uncertainty caused could have some affect on the mortgage market in the UK either causing the borrowing rates to increase or perhaps even fall. Traditionally banks just took money from savers and lent it to borrowers. But because banks today often borrow from each other to lend out money for mortgages to their customers, mortgage rates can be affected by changes in the money markets. The various interest rates set for borrowing on the money markets such as fixed rates, variable rates, and swap rates are influenced by a number of factors including the overall health of the financial system.

If doubts and uncertainty spread because of the Greek crisis it could affect the outlook for future interest rates and also affect how keen the banks are to lend. This could cause a credit crunch similar to that which occurred in 2007.

On the flip side if the issues in Greece cause minor uncertainty in the markets and wide spread panic is avoided mortgage rates could fall in the UK because it is seen as a safe place to invest money during uncertain financial times.

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