September 2022 | Property & Mortgage Market Update

london property


Property prices remain on the rise

Bloomberg is reporting that London’s housing market ‘is in flux with prices still rising on the outskirts and falling in most central areas’. This is likely still steered by the impact COVID had on homebuyers’ desire for outside space.

Despite the reports of house prices plummeting, the UK property market has remained strong, with August being the 13th month to see a rise in house price growth, with Nationwide, reporting an increase of 0.8%. 

Robert Gardner, Chief Economist at Nationwide commented:

“There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels.” However, the pre-pandemic levels have been exaggerated by a stamp duty holiday that dramatically increased the number of purchase transactions that closed during a defined timeframe. This led to a slightly artificial situation which has been slowly returning to more normalised trading conditions.

Big shift in the lending market

This month, we have experienced multiple lenders increase the product transfer windows they typically offer. Barclays, being one of the largest banks in the UK, will now allow clients to switch to a new rate 150 days before the end of the fixed end date of their current product.

This is a big shift in the market with most of them typically being restricted to 90 days in advance.

This shift has come into play in order to meet the needs of clients who are growing increasingly concerned about rising interest rates and want to lock in early. In doing so, banks are hoping to increase their level of retention, as many existing customers will look to lock in rates well in advance of being able to switch with their current lender.

Why are interest rates so high?

With the inflation bubble showing no sign of bursting, the Bank of England (BOE) has been embarking on a month-on-month increase in rates. So far, the approach has been consistent if not aggressive, although market expectations are that the increases are likely to continue with a 0.75% hike forecast for this month. The Russian invasion of Ukraine and soaring energy prices has led to a predicted inflation rate of 13%, according to the Bank of England. The pressure on BoE is clear, with the current rate of inflation showing no sign of slowing. Any chance of being able to return to the 2% targeted rate will require significant changes in market conditions combined with proactive intervention from BoE.

Catherine Mann, a Bank of England Policymaker in conversation with Reuters stated, that it was an important question to ask if there was a possibility of rates increasing by 0.75% next week at the BoE meeting (Thursday 22nd September). ‘Financial markets currently price in an 85% chance that the BoE will raise rates by 0.75 percentage points next week, in what would be its biggest rate rise since 1989’.

SWAP rates increase by nearly 1%

The volatility in the SWAP rate market has fed through into the mortgage market over the past month.

We have seen the 5-year SWAP rate track up by nearly 1%, which explains the sharp increases seen in the UK domestic fixed rate mortgage market.

Data supplied by Moneyfacts suggested that in August the average 5-year fixed rate across all Loan to Value (LTV) brackets sat at 4.24% – the highest rate since October 2014 and a rise of 1.60% compared to December 2021.

We expect data from this month to show further increases when released. Additionally, the average shelf life for a mortgage deal has dropped to 17 days, which is a new low, and shows that borrowers only have a very short window to make decisions before rates are withdrawn.

The expectation is that this period of time is likely to reduce in the short term whilst conditions in the SWAP markets continue to be so volatile.

Is it worth paying an early repayment charge to lock in a new rate now?

Even if your mortgage is not due to come to an end in the next 6 months, now could still be an opportune time to review your mortgage. Many of our clients are concerned that their mortgages are due for review at the time that interest rates are forecasted to be at their peak. As such, it could be beneficial to pay an early repayment charge in order to buy yourself the security of locking a rate in at the current level with further rises anticipated.

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