The Mortgage Lender’s Recent Economic Update

The Mortgage Lender in its recent Economic update has said The Bank of England may finally be done with interest rises, after the last meeting when it surprisingly decided to keep the Bank rate at 5.25%. However, the higher oil prices make show a long and bumpy road back 2% inflation.

After the chaos 2 months ago, there is confidence the Bank of England are done with rate increases, as inflation fell more than expected in August. However due to oil prices increases the Bank remains ready to act if required. That said, it is expected the base rate will remain at 5.25% until Summer 2024.

The economy is now showing signs of cooling

According to The Mortgage Lender over the last quarter, the size of the economy has been revised up, consumer confidence has improved, and inflation is in a better place. Households and business are getting through the ‘cost of living’ challenges.

However, the full impact of recent interest rises may have not been felt in full. Manufacturers are cutting down on jobs due to reductions in their order books. Unemployment rate grew by 0.5% during May – July 2023 in comparison to the previous quarter and vacancies have sharply fallen.

The Mortgage Lender states the much of the rise in unemployment is from a move of inactivity which may not result in a downward pressure on wage growth. Putting Wilko aside there is little signs of redundancy announcements.

Inflation and Interest Rates

Keeping the Base Rate at 5.25% in September was a close call within the Bank of England, which was helped by the unexpected positive inflation news. However, forward-looking business surveys suggest weaker activity ahead which probably tipped balance.

The Mortgage Lender believes with so much tightening still to digest, we are probably at the peak when it comes to interest rate hikes. However, a lot of what is to follow, is dependent on economic news. With energy prices rising and wage growth still strong, nothing is certain.

Therefore, it may be too early to discuss when rates will fall.

Mortgage Rates

Since the Bank of England published their August figures, the fall in products rates shows the markets expectation in the short term.

For those with large deposits, it is now possible to obtain sub 5% deals which are a significant improvement in comparison previous months. The question now is, how much further could they fall? The scope looks limited as banks had compressed their margins when rates were rising in order to be able to conduct business.

Market pricing is based on rates being higher for longer, however this may change if inflation falls within target and economy growth stagnates.

Mortgage Market Activity

Jumps in mortgage rates in July was followed by a reduction in approvals during August. According to The Mortgage Lender, with market expectations now not pricing in any more tightening, the market should rebound.

However, with affordability restrictions, this may limit the size of growth. Recent Halifax report states there was a fall of 22% in First Time Buyers between January – August in comparison to the same period in 2022. Though it should be noted, First Time Buyers comprised of half of all purchases.

Due to the challenges in the Buy to Let market, it is a surprise that this share is not higher. Average loan sizes have reduced, at a faster rate than the house prices, which is consistent with the news that First Time Buyers are looking at cheaper properties.

Rental Market

Recent government proposal to remove the EPC requirements on rental properties will ease some financial pressures on landlords. Along with expectations that rates have peaked and are now dropping. However even with rates around 5% in most regions the economics remain challenging.

The Mortgage Lender believes after the energy efficiency (EPC) announcement, it will not be a huge surprise the Renters Reform bill will not go ahead.

Demand for property continues to outstrip supply. Affordability is increasingly becoming the binding constraint in rent increases, especially in central London, according to Zoopla

How can Brooklyns Financial help?

It is an important time for borrowers to seek support and advice when needed, we will advise you on the options available that are bested suited to you. We are here to help you every step of the way Just give us a call 01628 564631 or email us info@brooklynsfinancial.co.uk for an initial chat?

Your mortgage is secured on your property. Your home may be repossessed if you do not keep up repayments on your mortgage.

The information contained within was correct at the time of publication but is subject to change.

Source: The Mortgage Lender