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August market update
Let's take a look at what's been going on in the property world this summer: a dip in inflation, the "price war" between mortgage lenders and more.
With summer coming to an end - what do we need to know about the property scene right now?
Interest rates, inflation, house prices and mortgage costs. There are a lot of moving parts, with each day bringing new property news. Whether you’re just emerging from a few days in Marbella with the girlies, or from a sodden tent in Scotland with the kids, you’ve probably missed a few key headlines. Let’s break down exactly what’s going on right now, including what dropping inflation might look like for your mortgage costs. Plus, what does the future look like in terms of the base rate, the health of the economy and property prices? As usual, we’ve got you covered in our jargon-free monthly update.
Inflation and interest rates
Increased inflation over the past few months has led to the Bank of England increasing interest rates in a bid to force them down. Statistics from July have shown that “headline inflation” has dropped to 6.8% from 7.9% in June. So, what will happen to the Bank of England’s base rate? Surely the BofE can start to drop (or at least level out) interest rates? Well, not yet it seems. Rises are predicted to continue, with a presumed hike to 5.5% or 5.75% in September. Why? Because of a government-mandated plan to drop inflation. Targets are not yet being hit. “Core inflation” (a measure which looks at price rises excluding food and energy) still remains stubbornly high. Headlines mainly report on, well, “headline inflation”, so it can be a bit misleading. Because of rising wages, which increases inflation (because of rising spending and rising product prices).
Yes, our eggs could temporarily stay the same price, but growing wages and the government desire to halve inflation means that interest rates may continue to rise."
Mortgage rates drop during "price war"
Interest rate rises and mortgage rate rises tend to go hand-in-hand. In fact, we've been talking about mortgage rates going up a lot. But is that changing? This month we saw a major drop in interest rates from some major lenders, leading some to name it a “price war” between lenders like NatWest, Virgin Money, Halifax, HSBC, Nationwide and TSB — as they compete to bring more affordable mortgage deals back onto the market. However some are suggesting that this reduction of fixed-rate deals will be short lived, due to the predicted hike in the Bank of England base rate next month. The truth is we'll have to keep an eye on the situation as it unfolds. That's what we're here for.
What does the future hold?
Headlines are invariably detailing the sharp inflation fall to 6.8%, but they differ a lot when discussing what the consequences might be. Let’s explore some options about what dropping inflation could mean — because, as usual, the experts don't always agree. Whilst headline inflation has dropped, core inflation remains high. Alfie Stirling from the Joseph Rowntree Foundation has indicated that "with interest rates continuing to rise, [3.1 million low-income] families are exposed to a double pinch; first from the rising costs of essentials, and then from the rising cost of money itself," he adds. Rises in essential foods like eggs and bread have eased, but are still 15% higher than a year ago. So inflation going down could help the cost of living crisis, but will it feel like enough that we can all actually breath a little easier? Cost of living crisis eased?
On the other side of the spectrum to “easing COLC”, is the apparent danger of an economic crash. Two thinktanks (NIESR and IPPR) have announced their belief that the UK could go into a recession, despite a slight drop in inflation. Why? Because of “the triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.” According to NIESR’s deputy director for macroeconomic modelling and forecasting, Prof Stephen Millard. Inflation isn’t coming down fast enough, with experts agreeing that it will likely be very hard to halve inflation by the end of 2023. So is this all a sign that things are about to get easier? Or is it just a little reprieve? We'll have to wait and see, but we'll be here to keep you posted. Or a possible recession still on the cards?
What about house prices?
London house prices have dropped, with the rest of the UK set to follow, according to official data from the ONS. This is, according to the ONS, the first time London-prices have fallen since pre-pandemic. Whilst this could be tough for those trying to sell their house for profit, it could mean that buyers are able to buy more property than they would have been able to afford in 2019. But remember, mortgage rates remain high and could counteract savings on the property itself. So although prices seem to be sliding down a little, that doesn't mean the average buyer — especially first-time buyers — will feel more buying power as they struggle with high interest rates. What about house prices?
London house prices have dropped, with the rest of the UK set to follow, according to official data from the ONS. This is, according to the ONS, the first time London-prices have fallen since pre-pandemic. Whilst this could be tough for those trying to sell their house for profit, it could mean that buyers are able to buy more property than they would have been able to afford in 2019. Though remember, mortgage rates remain high and could counteract savings made on the property itself. What about house prices?
In a nutshell
So whilst headlines are reporting on the good news of dropping inflation, it feels that the majority of us may not feel the impact — at least not yet. Yes, our eggs could temporarily stay the same price, but stubborn inflation may mean that rates will continue to rise. We'll have to wait and see. But we'll be back next month with all the major headlines and, most importantly, what it means for you.
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