Dissecting the chaos - what next for the property market?
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Like it never happened
Sterling has gained around 7% from the all-time lows plumbed on Monday, hitting as high as $1.12 in Asian markets this morning. That's about the level it was before Chancellor Kwasi Kwarteng set out his mini-budget last week and is largely credited to the Bank of England's £65 billion bond-buying programme.
All is not forgotten, however. The FTSE 250 suffered its worst sell-off since the onset of the pandemic yesterday. The retreat from equities was mirrored in many global markets, though sentiment is particularly poor in London following the mini-budget, analysts say.
Prime Minister Liz Truss and Mr Kwarteng will meet the office for Budget Responsibility today with a view to producing updated forecasts, though despite pressure from MPs there appear to be no plans to bring publication forward from November 23rd as things stand. Labour now has a 33-point lead over the Conservatives, according to a YouGov poll published yesterday.
Stress testing
The pound might be back but the mortgage market is anything but. Lenders continue to pull products off the market and those that do come back have rates well in excess of those on offer before the mini-budget.
The FCA has contacted the major lenders to probe what options borrowers rolling off fixed rate deals are likely to have during the weeks ahead, according to the FT. Before issuing mortgages, banks must stress test whether borrowers could afford to pay rates in excess of future expectations of the base rate or a given lender's standard variable rate.
“It will fall to individual lenders to assess where they are comfortable to place their thresholds," Simon Gammon of Knight Frank Finance tells the Times. "In normal market conditions this could be used to create competitive advantage and drive access to mortgages up. However, with such current volatility we could expect to see an overly conservative approach from lenders.”
What will the economic turmoil of this week mean for the health of the housing market? Find out in a little over 15 minutes in a new edition of our Intelligence Talks podcast featuring Andrew Wishart, senior economist at Capital Economics, Flora Harley and yours truly. You can listen here, or wherever you get your podcasts.
Single digits
UK house prices flatlined during September, according to Nationwide data out this morning. That brings annual growth to 9.5%, from 10% a month earlier. Here is Tom Bill's quote in full:
"We expect single digits to become negative digits next year given how far mortgage rates appear likely to climb. Everyone knew a normalisation was coming but the concern is that the government’s mini-Budget will lead to a steeper rate of increase and more financial pain for households.
"Given that the sums involved put the government’s entire economic plan in jeopardy, it feels like something has to give. The only thing that moves quickly in the housing market is sentiment and it has been damaged over the last week as mortgage products have been pulled.
"Whatever action the government takes, it feels almost inevitable that UK prices will fall next year. Prices have risen strongly over the course of the pandemic and for context, a 10% decline would only take us back to the level seen last summer.”
Read more from Tom on what's likely to happen next here. A reminder that we'll be publishing new forecasts for house prices in the coming days.
The view from Europe
German inflation surged to 10.9% during the year to September, the highest rate in more than 70 years. That's likely to push the wider euro-zone rate above expectations when it's published on Friday.
German chancellor Olaf Sholz yesterday announced a huge £200 billion "protective shield" to help businesses and consumers with energy bills, almost entirely financed by new borrowing. Finance Minister Christian Lindner was eager to put daylight between the German plan and the events in the UK. From the FT:
"We are not following the example of Great Britain by pursuing an expansive fiscal policy...even though we are setting up this protective shield, Germany is sticking to a fiscal policy based on stability and sustainability... German sovereign bonds remain the gold standard in the world.” German bond yields rose despite the positive spin as market digested surging German inflation.
Also yesterday, the European Systemic Risk Board, whose job it is to worry about the region's financial risks, said it was worried about systemic risks that have emerged since the onset of the war in Ukraine. That includes the housing market:
“Rising mortgage rates and the worsening in debt-servicing capacity due to a decline in real household income can be expected to exert downward pressure on house prices and lead to a materialisation of cyclical risks.”
In other news...
Hong Kong is a “pivotal gateway” between the Chinese mainland and the world, so the much-anticipated changes in the Covid-19 quarantine policy will be vital to Hong Kong’s economy – Martin Wong explains why.
Elsewhere - HSBC to review Canary Wharf tower HQ, consider new London base (Reuters), ‘Just a question of when’: Citadel’s Ken Griffin predicts US recession (FT), Canada to see 15% decline in house prices, state agency says (Bloomberg), and finally, work for days and sleep more (Bloomberg).