In the latest economic market update from The Mortgage Lender, the Bank of England’s stance on interest rates and the implications of higher oil prices take centre stage. While the Bank may have reached a pause in its rate hikes, the road to economic stability remains uncertain and the future of the economic hangs in the balance.
Economic Market Update Reveals Bank of England Is Holding Steady, But Uncertainty Looms
The Bank of England’s recent decision to keep the Bank Rate at 5.25% came as a slight surprise to some, but it was undoubtedly a welcome announcement to the majority of the country. This move was fuelled by a greater than expected fall in inflation in August 2023. However, according to the economic market update from TML, the rise in oil prices has kept the central bank on high alert, with the possibility of further rate adjustments in the coming months. It is anticipated that rates will likely remain at 5.25% until the next summer. Market expectations now align more closely with the Bank’s guidance. As a result, mortgage rates are thankfully beginning to drop, and there is a growing consensus that the housing market may have stabilised marginally, after recent turbulence.
Navigating Economic Risks
The economic landscape remains dicey, with both upside and downside risks in play. The division in consumer confidence between different income groups is a stark reminder that higher interest rates can have winners and losers. The household sector’s resilience will be a critical factor in determining the economy’s overall health. While oil prices have surged past $90 per barrel according to the report by TML, the global economic growth outlook is a bit more pessimistic, worsening inflation concerns. Geopolitical risks, particularly the strained relationship between the United States and China, continue to add uncertainty to the equation.
Cooling Signs Are Evident
The report from The Mortgage Lender highlights that the economy has demonstrated resilience over the past quarter, with upward trends in economic size, improved consumer confidence, and better control over inflation. However, the full impact of interest rate hikes is yet to be felt, with manufacturers responding to declining order books by cutting jobs. The labour market’s resilience is also uncertain, as unemployment has risen to 4.3% in May-July, while vacancies have declined significantly. The report identifies that much of the increase in unemployment appears to stem from previously inactive individuals entering the workforce, which may not exert downward pressure on wages. While some companies have announced redundancies, there are no indications of a significant increase in job losses across the board.
Mortgage Market Rates
The shift in market expectations regarding the Bank Rate’s trajectory has led to a noticeable decrease in mortgage product rates over the last few weeks. For those with substantial deposits, interest rates below 5% are now available, a significant shift from just a few months ago. However, the extent to which rates can fall further appears limited, as banks have compressed their margins in response to rising rates. Current pricing reflects the belief in a higher interest rate environment, which could change if inflation returns to target and economic growth stalls.
Mortgage Market Activity
The spike in mortgage rates witnessed in July 2023 led to a slump in approvals overall in August 2023. However, with market expectations now discounting further rate hikes, a strong market rebound is anticipated by The Mortgage Lender and other financial institutions. However, lender affordability restrictions may limit the scale of this improvement. First-time buyers have faced significant challenges in the last year or so, with their numbers down 22% in January-August compared to the same period in 2022. Despite these challenges, FTBs still represent a significant portion of the market and many brokers (Oportfolio Mortgages included) are still receiving a significant amount of first-time buyer enquiries.
Speak To A Qualified Mortgage Advisor
While the Bank of England’s decision to hold rates offers some form of stability, the economy undeniably remains on shaky ground and we are far in the clear. According to TML’s report, Higher oil prices and ongoing economic uncertainties will continue to pose challenges for the foreseeable future. Mortgage rates are responding to the Bank of England’s signals, but the housing market’s path to stability remains uncertain amidst a changing economy. So, if you or anyone you know is looking to get a new mortgage or re-structure a current loan, the best thing you can do is seek guidance from a professional broker. Call or email our team today to set up an free initial mortgage consultation with one of our brokers. We are here to help.