Mortgage news from the w/c 8th July 24
- hannah7179
- Jul 15, 2024
- 3 min read
Sweet dreams for borrowers or a nightmare on Threadneedle Street?
The UK economy had a positive start to the first full week following the General Election, with growth exceeding expectations at 0.4% in May. The Pound reached a one-year high, the FTSE 100 closed the week with gains, and the property market also saw positive developments, despite cautious remarks from Bank of England Chief Economist, Huw Pill.
During a speech to the Asia House think tank on Wednesday, Pill expressed satisfaction with the headline inflation rate reaching the 2% target in May. However, he emphasised that simply meeting the target temporarily is insufficient. Instead, the MPC should strive to achieve the inflation target consistently and sustainably.
He then added: “The difficulty in extracting signals about changes in the low frequency persistent component of inflation from noisy higher frequency indicators has not disappeared. Nor is it likely to in the coming months.”
Although the audience was uncertain about the meaning, they did understand that Huw is likely not a troublemaker on a night out. Traders, on the other hand, comprehended the significance, leading to an immediate shift in the financial markets. The odds, which had initially favoured a rate cut at 60/40, were promptly adjusted to 50/50.
However, there is still a possibility of the first reduction in the base rate since early 2020. Wage growth, which is the primary cause of services inflation, is anticipated to decrease even more next week.
The reduction in mortgage rates is ongoing
Lenders may be interpreting things differently from markets due to the slower increase in wages.
Over the course of this week, mortgage rates have continued to tumble, with major players such as Nationwide, Halifax and Barclays making further reductions to fixed rates.
But perhaps the clearest sign that lenders are expecting a cut in Bank Rate came from Virgin and Clydesdale Bank, who announced a 0.25% reduction to their Standard Variable Rates on Thursday.
It’s rare for lenders to tinker with their SVRs unless there is an official adjustment to the base rate, so this move may suggest they feel one is coming.
Surveyors are also feeling positive
When surveyors are feeling positive, you know it has been a good week for the property market.
According to the most recent residential property market report by the Royal Institute of Chartered Surveyors (RICS), a net balance of +20 survey respondents expect an improvement in residential sales over the next three months, an increase from +10 in June.
According to Tarrant Parsons, RICS Senior Economist: “There are some factors emerging now that could support a recovery in the months ahead. If the Bank of England does decide that the current inflation backdrop is benign enough to start loosening monetary policy next month, this may prompt a further softening in lending rates.”
Although it is a common belief, even if the Bank of England does not reduce the base rate next month, an examination of its data by Newspage revealed that mortgage approvals have increased by an average of 4.4% in the three months following the previous eight General Elections compared to the three months prior. Therefore, based on historical trends, property demand is expected to increase from now until September. Consequently, this should help maintain house prices.
Good news from the other side of the Atlantic
Looking forwards, next week we get the all-important UK inflation data, which will be a key driver of the Monetary Policy Committee’s decision on August 1st.
According to the latest forecasts, headline inflation is expected to stay steady at 2%, while core inflation is projected to remain at 3.5%. This suggests that the possibility of a rate cut is uncertain, but it also suggests modest expectations, as a lower-than-expected CPI figure could revive hopes for a rate reduction in the near future.
However, in the event of a nightmare scenario at Threadneedle Street in August, where the Monetary Policy Committee once again chooses to be cautious, it is possible that borrowers and the UK property market will be positively impacted by fuel prices 3.5 thousand miles away.
US inflation decreased to 3% in June from 3.3% in May, mainly because of the drop in petrol prices. This development has led markets to believe that the US Federal Reserve could potentially lower interest rates as soon as September.
And history shows that where the US leads on rate policy, the UK tends to follow.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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