Market Watch: Prepare for Sunak’s Medicine


It all still seems a bit unbelievable when you reflect on the last few weeks since the former Chancellor’s not-so-mini budget. If this was an episode of The Thick of It, you might have found the whole thing a bit far-fetched.

What would be even more incredible is if a Home Secretary had resigned for harming national security, then been rehired a few days later, and another MP went to the Australian jungle to eat penises. kangaroo while Parliament continued to sit…. Oh hold on….

Swap rates have fallen back to some semblance of sensitivity

In this short time, and after all all hell has broken loose in the markets, we finally seem to be in an atmosphere of calm, for which the whole country is grateful. The markets have been mellowed, at least for now, but the cost has been the biggest political U-turn ever, another new Prime Minister, a new Chancellor and a revolving door of cabinet posts as some come and go and even come back!

Trusonomic

We have also witnessed the fundamental destruction of ‘Trussonomics’ as we know it, and many dare to ask the question: should it really be about ‘growth, growth, growth’?

This utterly unnecessary and self-inflicted devastation has us all in the industry and anyone with a mortgage worried. And, while the markets have responded well, thankfully since Sunak and Hunt took over, with gilt yields falling and the pound rising, the damage has left scars that don’t heal easily.

Get this point right and the start of next year in the real estate and mortgage market could well be a lot brighter than many initially thought.

The good news is that all of this has resulted in lower swap rates, with two-year swaps down 1.3% from their previous high and five-year swaps down 1%. Meanwhile, 10-year silver is again below 4%.

Markets are therefore currently showing that the 3-month Sonia is up slightly by 0.03% but stable at 3.36%, while swap rates have fallen back to a semblance of sensitivity.

From the last column:

The 2-year silver is down 0.78% to 4.50%

The 3-year silver is down 0.84% ​​to 4.41%

The 5-year silver is down 0.78% to 4.19%

10-year silver is down 0.67% to 3.74%

As I write we have another move in the Bank of England (BoE) base rate tomorrow and while it may not be the more than 1% hike that some worried, another 0.5% to 0.75% is likely. If it is 0.75%, it will be the biggest increase since 1989 and the 3% level will be reached for the first time since 2008.

Interestingly, the US Federal Reserve raised rates by such an amount for the fourth consecutive time, but signaled that the pace of increases may soon slow.

Prices are much more likely to stagnate than to cross the floor

It now appears that UK interest rates are generally heading towards a new “normal” of around 3.5% to 4%, rather than the 6% feared a few weeks ago.

Although some lenders have started to lower rates again, rates may not come down too quickly due to lenders’ desire to preserve service levels after recent high application volumes. I suspect the pipelines will start to loosen up and hope that normal service will resume very soon. We may even see some competition for business returning to the market before the end of the year.

There are so many variables in the real estate market right now that you need a Silicon Valley algorithm to figure it all out, but the overriding theme is uncertainty. Property prices are expected to come under pressure, but the steep declines of more than 15% that some are predicting are unrealistic given the lack of supply. Prices are much more likely to stagnate than to cross the floor.

With gold leaf yields falling and the pound rising, the damage has left scars that don’t heal easily

If there’s one thing everyone can agree on, it’s that the era of cheap money has been consigned to the dustbin of history.

Much now depends on two things. The first is the language of the BoE when explaining the next hike. Hopefully this will be soothing and hint that rates won’t have to rise much more, rather than something more incendiary.

The second is the government’s long-awaited latest financial statement and accompanying OBR report later this month. Although no one wants to see a full-fledged austerity campaign again, tough decisions need to be made to close the gaping hole in UK finances. Sunak understands this more than most, and while the medicine may be unpleasant, it will be something we will all need to take in the short term to keep things calm so we can get stronger again.

What does Michael Gove, who recently embarked on another home-building goal, have up his sleeve?

In fact, what we all aspire to today is “boring and boring”. Get this bit right and the start of next year in the real estate and mortgage market could be a lot brighter than many initially thought. Stable interest rates, lenders eager to lend, and a slowdown in house prices will all contribute to higher transaction levels.

Lenders relax

Meanwhile, there have been a few interesting things happening in our beloved market. It’s been good to see a wave of lenders cutting rates and reintroducing products like trackers, and Halifax resuming fee-based lending.

As many expected, and understandably, we also saw the leading lender, Nationwide, begin to reduce the time to expiration of the rates it offers on retention products. This will be reduced to five months from November and four months from December.

Hopefully the BoE will calm down and hint that rates won’t have to rise much more, rather than something more incendiary

And it’s finally goodbye to purchase assistance, the much-loved and hated government policy that has supported builders and first-time buyers for so long. It will be interesting to see if something replaces it, and what will happen if lenders don’t all rush to lend 95% LTV on new build apartments, which of course they won’t. What does Michael Gove, who recently embarked on another home-building goal, have up his sleeve?

The buy-to-let industry has struggled in recent weeks. Hopefully lenders will consider how they can lend in this space to allow borrowers to get the financing they need.

TMW has brought back its tracking rates, while Fleet Mortgages has a new underwriting process dedicated to owners of four or more properties.

The Ami site offers a wealth of resources on career development, codes of conduct, leadership and more

In the green space, amid some “green laundering” claims, it was good to see Tandem Bank launch its Tandem Marketplace, labeled as a “dedicated hub that will provide consumers with the key information, resources and choices they need.” for a greener life.

Much more needs to be done in this area, as shown in a recent Mortgage Advice Bureau survey where 63% of advisors said their clients had never heard of green mortgages. UK Finance has called for stamp duty to be adjusted to take account of a property’s energy efficiency and for much-maligned energy performance certificates to be fit for purpose.

Many actually dare to ask the question: should it really be about “growth, growth, growth”?

Even more fabulous are the new Ami sites: one devoted to the green agenda; and a rich work of art dedicated to diversity and inclusivity for anyone looking to work in our industry. This offers a wealth of resources on career development, codes of conduct, leadership and more.

It is brought to you by Ami in conjunction with the Intermediary Mortgage Lenders Association and co-developed by volunteers working across the industry to provide a more inclusive environment.

zero heroes

Ami’s new websites on diversity and inclusion, and green issues, and everyone who has contributed to their development. Please check them

Lenders are coming home with more products and lower rates

Farewell to purchase assistance – firmly between good and evil…

Potential crisis in rental markets as landlords struggle with mortgages

Trussenomics – in the bin, where it belongs

What really makes me cringe?

I really feel like I need to dwell on the mental health issue, even though I know I’ve done it before. The Mortgage Industry Mental Health Charter is a unique concept and more important than ever in recent years.

I urge you all to get your business to join. It is easy to do; there are no massive annual forms, no setup or membership fees; simply show a commitment to the welfare of the people who work for you or around you.

It exists simply to provide advice, tips, guidance and a simple framework so that member companies can adopt and then customize tailored services that best support their staff. It really is a no-brainer.

If you work for a company that doesn’t accept this, you have every right to ask tough questions. It really could make all the difference and literally save a life.

Andrew Montlake is a director at Coreco

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