In the ever-changing landscape of the mortgage and housing market, staying informed about economic trends and policy shifts is crucial for prospective homebuyers, homeowners, and industry professionals such as ourselves at Oportfolio Mortgages. The Mortgage Lender (TML), a specialist UK based mortgage provider recently released its September 2023 economic update, shedding light on the current state of the British economy and its impact on the mortgage market. This comprehensive report provides insights into key factors affecting interest rates, housing affordability, and mortgage market activity. All of this data can be found by following this link. All data was compiled by TML in collaboration with 4most analytics consulting. Here is our breakdown of what the report says.
Economic Softening and Monetary Policy As Reported By TML
The TML report highlights a significant slowdown in economic activity, largely attributed to the unprecedented tightening of monetary policy. One of the alarming indicators is the negative growth in money supply, signalling a potential reduction in consumer spending and investment. Purchasing Managers’ surveys conducted in August revealed a contraction in economic activity, and the single-month unemployment rate reached 4.6% in June, a mere 0.1% below the anticipated peak expected next year.
While a shallow recession appears imminent, the real question is whether the Bank of England deems its monetary tightening measures sufficient. The answer hinges on upcoming wage and price data, especially after August developments suggested a potential increase in inflation to 5.5%. The Bank’s Chief Economist has hinted at the possibility of rates remaining at 5.25% for an extended period, raising the possibility of a pause in further rate hikes.
Impact on Housing Market As Reported By TML
For those closely watching the housing market, the TML report holds important insights. House prices dipped by 0.8% in August according to the Nationwide measure. The consequences of higher interest rates are expected to linger in the housing market for some time. Given the sluggish state of activity, particularly in the First-Time Buyer market, the report suggests that prices would need to fall by at least another 5% to restore affordability to a more sustainable level.
The TML report underscores several potential risks on the horizon, with the battle against inflation taking centre stage. While the energy price cap is set to fall by 7.3% in October, concerns about rising wholesale gas and petrol prices remain. Additionally, extreme weather events continue to impact food prices, adding further inflationary pressure.
Another global concern highlighted is China’s property market, which is often viewed as a potential source of instability. China’s economy has shown signs of struggle, prompting government efforts to stimulate domestic demand. However, the report raises the spectre of deflationary pressures and instability due to the interconnected nature of the global goods and financial markets.
Inflation and Interest Rates
While inflation saw a sharp decline in July following a reduction in the domestic energy price cap, core inflation remains stubbornly high. Services inflation rose to 7.4%, with significant contributions from the hotel and air transport sectors. Despite some positive signs, monthly price increases continue to exceed comfort levels. The report suggests that the peak in interest rates may be near, with markets anticipating a further 50 basis points of tightening. However, this forecast is contingent on wage and inflation data leading up to the MPC meeting on the 2st of September 2023.
Mortgage Market Activity From TML
As mortgage rates gradually ease following the turmoil experienced in July, there is optimism for improved market activity. Nevertheless, the market still feels far from returning to a state of normalcy. New landlords are showing reluctance towards the Buy-to-Let market, driven by economic concerns, impending legislative changes such as the Renters’ Reform Act, and energy efficiency requirements (EPC). Affordability constraints also continue to limit First-Time Buyer activity, with lower house prices considered the primary avenue for improvement.
Mortgage Market Rates
The report emphasizes that there is no incentive for the Bank of England to downplay market expectations of sustained higher rates, as this aligns with their goals. However, the implied trajectory could result in significantly higher real rates than those observed since the Global Financial Crisis in 2008. Recent statements by the Bank’s chief economist suggest a possible scenario where rates remain at 5.25% for an extended period, potentially leading to a drop in the cost of shorter-term lending relative to longer-term fixed rates.
Speak To a Mortgage Professional
TML’s September 2023 economic update presents is a comprehensive overview of the current economic landscape and its implications for the mortgage and housing market. As experienced and professional mortgage brokers, Oportfolio is constantly kept up to date with the latest data and information recorded by lenders. If you have any questions or concerns about the UK mortgage market, then please feel free to give our team a call or drop us a message today. We are here to help.