Mortgage Madness
This week, we saw some big changes in the UK mortgage market as major lenders decided to cut their rates in what seems like a rate-cutting battle. It all kicked off when TSB lowered fixed rates for first-time buyers and home movers by up to 0.25%. Not wanting to be left behind, HSBC and Barclays quickly followed with their own rate reductions across both residential and Buy-to-Let mortgages. The real highlight, though, came from Nationwide, offering a 5-year fixed rate at 3.78%—a figure we haven’t seen in at least two years!
For many prospective homeowners who have felt pushed out of the market due to higher interest rates, these cuts could offer some much-needed relief. Lower rates mean cheaper mortgage payments, which makes it easier for more people to get on the property ladder or move homes.
But while mortgage rates are falling, the broader economic picture remains a bit uncertain. Insolvencies are on the rise, with over 10,500 individuals entering insolvency in July 2024 alone—a 24% increase compared to last year. However, it’s worth noting that insolvency rates often lag behind other economic indicators, so we may be nearing the peak. Interestingly, we did see a slight improvement, with insolvencies dropping by 7% month-on-month.
Golden Opportunities and Sterling Performance
Elsewhere, financial markets have seen some eye-catching movements. Gold prices hit an all-time high, driven by global factors like falling interest rates, central banks buying up gold, and ongoing geopolitical issues. For those with investments in gold, this has been a golden opportunity—quite literally.
Meanwhile, the British pound (GBP) has been flexing its strength, hitting a 1-year high against the US dollar at $1.30. While a strong pound can help reduce inflation by making imports cheaper (especially commodities priced in dollars), it can also hurt UK exports, which become less competitive internationally. This reflects the difference in monetary policy between the US and UK. The US Federal Reserve is expected to cut rates soon, while the Bank of England is likely to hold steady for now.
A Fiscal Tightrope with Economic Green Shoots
On the government side, public borrowing hit £3.1bn in July, the highest for that month since 2021. This was much higher than expected and could make things tricky for Chancellor Rachel Reeves as she prepares for the upcoming budget. Higher borrowing limits her flexibility, but there is a potential silver lining: GDP growth forecasts could be revised upwards, giving her more room to manoeuvre.
In terms of the economy’s health, there are some signs of improvement. The latest flash PMI numbers show growth is ticking up while inflation is easing, especially in the services sector where costs have hit a 3.5-year low. Consumer confidence has also held steady at a level similar to 2019, a time when the UK saw stable growth and manageable inflation. While consumer optimism hasn’t yet fully translated into higher spending—perhaps because of the bad weather—the outlook is looking more positive.
What’s Next for Interest Rates?
Globally, we’re seeing some important signals around interest rates. US Federal Reserve Chair Jerome Powell recently hinted that the time might be right for a shift in policy, suggesting that rate cuts could be coming soon. The pace and timing of these cuts will be closely watched by markets. In the UK, while rates are expected to remain steady for now, positive domestic economic data could pave the way for a strong second half of the year.
In summary, this week’s mortgage rate cuts are a bright spot for homebuyers, especially with falling rates offering more affordability. But as always, it’s important to keep an eye on the bigger economic picture—because, while things may be looking up, challenges remain on the horizon.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Author:
Founder and mortgage and protection adviser in Albion Financial Advice
Dariusz Karpowicz is a seasoned adviser in the financial services industry. After gaining valuable experience working with an established broker, he founded his own practice, Albion Financial Advice. This firm is dedicated to assisting clients in acquiring properties and advising on various mortgage options. Born and raised in Gdańsk, Poland, Dariusz moved to the United Kingdom in 2006.
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