Flattening economic data and the mortgage market


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Before I discuss the flattening economic data… I have mainly been lying in a dark room today, recovering from what is akin to PTSD after my daughter’s birthday parties yesterday…

After the last few years, we thought it would be a great idea to throw a joint party for my daughters who are turning 5 & 9 next week. We tend to do it early otherwise everyone disappears for Christmas! We had 40 kids, 2 age groups, a circus entertainer, 2 face painters, and plenty of parents which seemed like a good idea at the time, but was certainly a grind on the day… In fairness, the entertainer was exceptional, we got the largest cakes known to man and we stocked up on Prosecco for the parents. So everyone went home happy!

One thing that stuck in my mind was that a few parents came up to me to say it was their child’s first-ever birthday party. My youngest is in Reception, so the younger ones have missed out on parties the last few years. In fact, nearly half their lives have been in this post-pandemic world so statements like that remind you how odd things are.

Talking of missing out, I just saw that Lewis Hamilton cruelly missed out on the record-breaking 8th F1 championship. Talk about bad luck… but as his world title bid has petered out, I fear this year has equally come to an equally flat end with new restrictions in place and the majority of my week ahead already cancelled… Naturally, that impact will filter into financial markets so that is what I want to look at in more detail this week:

Petering Out

Sadly having a ‘work at home’ recommendation is the worst of all worlds. Naturally, the majority of people will prefer to work from home now until the new year, as the risk of getting Covid ahead of their own Christmas plans, much outweighs the commute or mixing with others. That will undoubtedly be another hammer blow to the hospitality sector and other service industries.

That does come on a backdrop of flattening economic data, and that was ahead of the stay-at-home’ recommendation’.

GDP Rises by just 0.1% in October

Initial figures from the ONS (Office for National Statistics) suggest that the UK economy only grew by 0.1% last month, and is therefore still 0.5% below pre-pandemic levels. Chancellor Rishi Sunak said: “We’ve always acknowledged there could be bumps on our road to recovery, but the early actions we have taken, our ongoing £400 billion economic support package, and our vaccine programme mean we are well placed to keep our economy on track. “We have still been recovering quicker than expected, with more employees on payrolls than ever before and redundancies remaining low.”

Pick Your Poison by the Bank of England

The above situation makes life extremely hard for the Bank of England. With inflation in the UK at 4.2% and set to rise considerably in the new year this no longer looks ‘transitory’. With the US rate of inflation hitting 6.8% this doesn’t look to be an issue that is going away from an International perspective either. So the Bank of England has to balance off what is more important in their meeting on the 16th December – potentially let inflation run riot, or kill off any sort of recovery? Rather them than me… Money markets certainly do not think they will raise rates next week (more on that below), so only time will tell of not raising interest last month as expected was great foresight, or a missed opportunity. Hindsight is such a wonderful thing…

Rate Corner

Money markets are down again and we now even have fears of an economic contraction in the coming months. Yet that is in a backdrop of rising inflation, so money markets have responded by falling back, which indicates they do not feel the Bank of England will raise interest rates in December.

That said, mortgage product rates have moved up in recent weeks, so even with the recent declines, I suspect that will not be enough to reverse that trend for the foreseeable future.

Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit/equity, but keep it short term or flexible if less than that figure.

In the last week:
3 Month Sterling = down by 0.011 at 0.086%
2 Year SWAP = down by 0.092% at 0.972%
5 Year SWAP = up by 0.089% to 1.077%
Bank of England Base Rate = Held at 0.10%

Flattening economic data and the mortgage market

Best Rates

2 Year Variable from 0.51%
2 Year Fixed Rates from 0.89%
5 Year Fixed Rates from 1.32%
BTL Rates from 0.99%

The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Source: Twenty7Tec December 2021

If you want to know what impact this flattening economic data has on you specifically, please get in contact with one of the team who will happily talk you through how best to navigate these themes based on your specific situation.