Underwriting first-time-buyers
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
6% mortgage rates
The Chancellor met with executives from the UK's largest mortgage lenders this week as Moneyfacts data showed both the average two and five-year fixed rate mortgage rates surpassed 6% for the first time since around the time of the financial crisis.
The upshot of these meetings is likely to be an extension of the mortgage guarantee scheme for first-time-buyers in which the Treasury underwrites the proportion of the deal above 80% LTV.
Calm has returned to swap markets relative to the days after the mini-budget and the number of mortgage deals available has crept back up to 2,371, though that's well below the 3,961 on offer on the mortgage of the statement, according to the Times. We continue to hold the view that lenders will reintroduce some products at more sensible rates should that calm continue - indeed HSBC will launch cheaper rates for existing borrowers from this morning, according to the same Times report.
Sooner rather than later
The pace of rising interest rates has given the market a dose of urgency. The number of offers accepted outside of London hit the highest level in about five months during the week after the mini-budget.
That coincided with a broad improvement in the supply of homes for sale. The amount of property available to buy outside of London during September was at its highest level since January 2021.
Values continue to come under pressure, however. UK house prices dipped 0.1% during September, the second marginal decrease in the last three months, according to the Halifax index out this morning. The annual rate of growth dropped to 9.9%, from 11.4% a month earlier (see chart).
Price hikes
There is plenty in the papers to suggest both business and consumer sentiment is dipping markedly. British retailers last month saw their slowest sales growth since shops reopened after lockdowns, according to BDO. Companies are the most downbeat about the outlook for their profits since the depths of the pandemic, according to the British Chambers of Commerce.
Nevertheless, businesses expect to raise their prices by 6.6% during the year ahead, up from 6.5% a month earlier, according to an influential Bank of England survey out yesterday. The labour market too, remains stubbornly tight, according to the latest KPMG/REC report out this morning. Both will feed into the next decision on interest rates, out November 3rd.
US mortgage rates dip
Average US mortgage rates fell slightly last week, according to Freddie Mac, though as you'll see from the chart, we've been here before.
The volatility reflects the often conflicting economic signals in the US data, as investors seize on any piece of evidence suggesting the Fed will or won't ease off the gas soon. We'll have more of that later today when the government releases jobs market figures. Economists surveyed by Dow Jones expect the unemployment rate to hold at 3.7%.
Mortgage rates have more than doubled since the start of the year and house prices are cooling nationwide. Should mortgage rates rise to 7%, that would force about 68% of prospective buyers to pause their home searches, according to a recent Zillow survey, covered by Bloomberg. The Federal Reserve funds rate sits at 3% - 3.25% and is likely to hit 4.5% to 4.75% next spring, according to Chicago Fed President Charles Evans.
In other news...
UK construction returns to growth, but maybe not for long (Reuters), ECB warns of potential for ‘self-reinforcing’ inflation (FT), US Inflation’s slow grind down (FT), global recovery setback could wipe out $4trn, warns IMF chief (Times), and finally, the booming global superyacht industry (Bloomberg).