As the UK economy moves on post the leave vote we have an opportunity to take a look at the mortgage and housing markets as we peruse new data. That will take our minds off all the news services pointing out another record low for the share price of my old employer Deutsche Bank which has fallen 6% this morning in response to reports it will not be bailed out. Speaking of price plummets we were of course promised this by the former Chancellor of the Exchequer George Osborne.
An analysis by the Treasury to be published next week will suggest that two years after a Brexit vote, UK house prices could be between 10% and 18% lower than after a remain vote, Mr Osborne told the BBC.
The next bit was maybe even more spectacular.
And at the same time, first-time buyers are hit because mortgage rates go up, and mortgages become more difficult to get.
Apparently a drop in prices would not even help first-time buyers according to the convoluted logic of Mr. Osborne.
What has happened to UK mortgage-rates?
Last week Moneyfacts told us this.
The cut to base rate has had a welcome impact on mortgage rates, and it isn’t only residential borrowers who are benefiting. Indeed, our latest research shows that buy-to-let (BTL) investors are continuing to enjoy a fall in mortgage rates, particularly those looking for a longer-term deal, with average rates falling to all-time lows.
Ah all-time lows again! What sort of rates are being seen then?
the figures show that the average five-year fixed rate BTL mortgage at 75% loan-to-value (LTV) has fallen by a significant 0.49% in six months to stand at 3.96%, which marks the first time that the rate has fallen below 4.00%. Meanwhile, the average five-year rate at 70% LTV has fallen by 0.15% in a single month, while the average at 60% LTV has fallen by 0.13%.
If we want some more perspective we have this.
all rates have dropped dramatically, with all falling by almost 1% year-on-year:
So it would appear that in spite of the surcharge on Stamp Duty in April new borrowers and those able to remortgage are better off in terms of monthly repayments.
If we move onto ordinary mortgages then Moneyfacts told us this on the 15th.
The figures, taken from the latest Moneyfacts UK Mortgage Trends report, show that the average two-year tracker mortgage rate has fallen by a significant 0.19% in the last month, standing at 1.94% in August (down from 2.13% in July). Not only is this the lowest ever recorded, but it implies that almost the full 0.25% base rate cut has been passed on.
A little care is needed on the Bank Rate cut issue as banks rather sneakily nudged rates higher in July in anticipation of the widely expected official change. The same was true of fixed-rate mortgages with the net effect shown below.
Nonetheless, the month-on-month fall of 0.04% means that the average two-year mortgage rate has hit yet another record low of 2.44%, while the average five-year fixed rate has seen a similar reduction of 0.03% to another record of 3.05%.
So we see a world where up is yet again the new down as the mortgage rates which were supposed to rise have in fact fallen across the board to what are mostly all-time lows.
The Bank of England steps in
There have been a litany of easing moves from the Bank of England since the leave the EU vote. These of course contradicted all versions of the Forward Guidance of Governor Carney. We have seen a cut in the Bank Rate to 0.25% which is below the “lower bound” of Governor Carney as well as hints of future cuts. In addition we have seen £60 billion of conventional QE (Quantitative Easing) announced of which some £1.17 billion of short-dated ( up to 2023 maturity) purchases will take place this afternoon. Thus we see that downwards pressure was placed on both variable and fixed-rate mortgages.
As of last week another weapon has been deployed which is the Term Funding Scheme. This offers up to £100 billion for four years at the Bank Rate itself. So it is a replacement for the Funding for (Mortgage) Lending Scheme which still exists albeit mostly as a vehicle which supported past mortgage lending. Those who want to know more about the TFS can read about it in my article of the 16th of this month, but for today’s purposes it is a vehicle to keep the downwards pressure on mortgage interest-rates. We only have data on the first couple of days when nothing was taken but at any time banks have trouble funding products it is there as a backstop and a very cheap one at that.
If we look at the official data there has been little sign of a collapse or a reverse in house prices.
Average house prices in the UK have increased by 8.3% in the year to July 2016 (down from 9.7% in the year to June 2016), continuing the strong growth seen since the end of 2013.
The march higher has in fact continued.
The average UK house price was £217,000 in July 2016. This is £17,000 higher than in July 2015 and £1,000 higher than last month
Late last week Jackson-Stops published some research on the subject which is more up to date.
Asking prices of all UK properties for sale down by only 2% (from £297,508 in mid-June to £291,547 today)…… In London asking prices are only down 3% since mid-June
The caveat is that these are asking prices and not ones at which sales took place but there is only a mild change there. Some parts of London were already heading south as those who recall my article covering an area near to me ( Battersea Power Station and Nine Elms) where many new builds seem to have swamped demand.
As ever the numbers vary with whoever you ask as the Halifax recorded a 0.6% rise in house prices in August!
British Bankers Association
They have reported this today.
House purchase approval numbers are 21% lower than in August 2015 but in the first eight months of 2016 they are 2% lower than in the same period of 2015.
Is this a turn or a wait and see what happens? Actual borrowing was quite strong.
Gross mortgage borrowing of £12.4bn in the month was 1% higher than in August 2015. Net mortgage borrowing is just under 3% higher than a year ago.
Actually though the data is not what you might think as it was collected before the Bank of England move on the 4th of August! So we are left perhaps with the Council of Mortgage Lenders.
The Council of Mortgage Lenders estimates that gross mortgage lending reached £22.5 billion in August – 7% higher than July’s lending total of £21.1 billion. In addition to the month-on-month rise, lending rose 15% year-on-year, from £19.5 billion in August 2015. This is the highest August figure since 2007 when gross lending reached £33.6 billion.
Looking forwards there is this.
As with survey indicators for the economy, those for the housing market have also recovered in August. The Royal Institution of Chartered Surveyors survey bounced back, predicting price and sales volumes to rise over the three- and 12-month horizon.
As is so often the case we find ourselves noting information and data sources which are contradictory. However we do know that mortgage rates have fallen and that many house price indicators have shown rises. That is sad because whilst Chancellor Osborne used house price falls as a threat many such as first-time buyers would welcome them.
If we have many more days like this one then going forwards there may be issues over banks lending due to the fact their share prices are under pressure. Against that we know that central banks will rush with the speed of Usain Bolt to the aid of their “precious”. Maybe what is most remarkable is that with all the aid and help they have received banks seem to have lost some more supporters in terms of investors.
Meanwhile there is some happier news from one present and two past players from West Ham United. From the Guardian.
A year ago, former England captain Rio Ferdinand, West Ham United skipper Mark Noble and ex-Brighton striker Bobby Zamora turned up at the conference to unveil their Legacy Foundation – a regeneration charity with a plan to build a series of social and privately rentable housing schemes, backed by private investors.
The stars (all three of whom have played for West Ham) are coming back to present their first project, worth £400m, to build 1,300 homes on a 22-hectare site in a run-down area in Houghton Regis near Luton.