Here are week 40's highlights in the UK economy.
UK home prices dropped 0.1% in September. The property market prices dipped for the second consecutive month, according to Halifax. The average price is now at £293,835.
Mortgage rates near 6%. After lenders resumed their activities following the market turmoil that shook UK gilts last week, the two-year fixed-rate mortgage reached 5.75% on Monday.
Knight Frank has revised its UK house price forecast. The real estate company expects house prices to fall -5% next year and in 2024 while prime central London prices will fall -3.0% next year.
Gas supplies will remain tight. The International Energy Agency has warned that the Russian-Ukraine conflict will continue to affect global oil supply in 2023.
Kwarteng abandons tax plan. The UK chancellor decided to abstain from abolishing the 45% top tax rate as pressure from Tory MPs mounted. Prior to the announcement, the pound was up +0.4% against the dollar at $1.12 on the day, while gilt prices fell 0.07 percentage points to 4.02%.
Medium-term fiscal plan to be unveiled ahead of schedule. Kwarteng announced that the plan will be published before the end of October as he continues to reassure the public that his fiscal plans will work.
Finanze® Foresights:
There were already signs of the housing market’s slowdown even before Kwarteng’s mini-budget speech, but the shortage of supply and the stamp duty tax cut caused many forecasts to show positive house price growth for the coming year. When the gilt market reacted and sent mortgage rates above 6% price forecasts were revised to reflect a more pessimistic outlook.
We are of the view that house prices will reduce, although not as much as they did during the 2008 financial crisis.
With affordability still an issue, remortgaging will prove to be expensive for hundreds of borrowers whose fixed-rate mortgages are close to expiry. However, those with longer fixed terms will need to weigh if it is worth paying the penalty now for early termination to avoid paying even higher rates later on, if rates continue to rise.
For new homebuyers, the only way to secure a mortgage is to remain in their jobs, establish their creditworthiness and prepare a higher deposit. Avoiding unnecessary spending on non-essential goods and services would also stand them in good stead.
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