Afternoon summary
A quick recap…
The cost of a two-year fixed-rate mortgage in the UK has risen above 6 per cent today for the first time this year, as thr turmoil in the property sector continued.
Average two-year fixed mortgage rates hit 6.01%, from 5.98% on Friday, financial data provider Moneyfacts reported.
The rise came as investors anticipate another increase in Bank of England base rate on Thursday, probably from 4.5% to 4.75%.
The financial markets now believe there is a greater than evens chance that UK interest rates hit 6% by early next year.
UK government borrowing costs continued to climb, with the two-year gilt yield hitting 5% for the first time since 2008. That will put further upward pressure on mortgage prices.
OOPS! UK 2y yields jump >5% for 1st time since 2008 ahead of the Bank of England's interest rate decision this week. Markets are pricing in another rate hike to 4.75%. The terminal rate is assessed at 5.8% for the March 21, 2024 BoE meeting. pic.twitter.com/AF30czDSo6
— Holger Zschaepitz (@Schuldensuehner) June 19, 2023
Increased borrowing costs have prompted some lender to withdraw deals, while other products have been repriced with higher interest rates in the last month.
Rising interest rates means people looking to remortgage their homes will pay an average £2,900 a year more from 2024, the Resolution Foundation think tank predicted.
But despite the squeeze, prime minister Rishi Sunak sounds unwilling to provide specific help for mortgage holders.
Speaking on ITV’s Good Morning Britain, Sunak said:
“I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people.
Consumer champion Martin Lewis accused chancellor Jeremy Hunt, and UK banks and regulators, of missing the opportunity to agree protections for mortgage holders before rates surged.
They can't say they weren't warned!
— Martin Lewis (@MartinSLewis) June 19, 2023
Last Autumn, I raised an alarm about a coming potential mortgage ticking time bomb with millions facing huge bill-shock as their fixes end.
So much so the Chancellor called a mortgage summit; sadly it was just a missed opportunity talking…
Asking prices for British homes fell in June for the first time in six years, as rising interest rates hit the markets and dragged forward the usual summer slowdown.
But retail chain Next has lifted its profit forecasts, reporting that sales have been much stronger in recent weeks than expected. It attributed this increase to the better weather (more demand for summer clothes) and recent pay rises…
And in other news:
Updated
Truss: Media's understanding of economic ideas is very poor
Former UK prime minister Liz Truss has been sharing some little gems of wisdom from her time in office.
Speaking at the European Broadcasting Union’s NewsXchange conference in Dublin today, Truss argued that the U.K. was, and still is, in “serious economic trouble”, Politico reports.
Truss, who left office after 45 days after her government’s mini-budget backfired, causing turmoil in the markets, said she needed to be “bold” to reverse declining economic growth.
She admitted she lacked support from Tory MPs and “could have gone a bit slower” with her economic reforms.
But Truss also criticised the UK media’s coverage of politics, saying:
“I do think sometimes politics is sort of treated as a branch of the entertainment industry, who’s up, who’s down, who says what about who.
“I think the level of understanding of economic ideas in the media and the ability to explain them is very poor indeed.”
Former UK PM Liz Truss admitted today at the News Xchange conference in Dublin that she made a "series of mistakes" during her time as PM, but blamed her downfall on the media's "poor understanding" of economics. #NewsXchange #EBU @trussliz pic.twitter.com/mazUNgOBQS
— News Xchange (@NewsXchange) June 19, 2023
““I think the level of understanding of economic ideas in the media and the ability to explain them is very poor indeed”
— Neil Robertson (@NeilDRobertson1) June 19, 2023
A quote from Liz Truss - that famous giant of the economics world!😀#ToryBritain
The pound hit a record low in the aftermath of Truss’s mini-budget, as traders were concerned by the package of unfunded tax cuts announced by chancellor Kwasi Kwarteng.
UK bond yields jumped, but then recovered some ground after the Bank of England launched an emergency intervention last September.
Updated
Another UK interest rate rise looks almost certain on Thursday, but the market view of further borrowing cost increases is “too pessimistic”, says economic forecasters at EY ITEM Club.
They argue that the ingredients for an improvement in the inflation outlook means current market expectations of rates peaking at close to 6% early next year look too pessimistic.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Recent surveys from the Bank of England and Citi/YouGov show inflation expectations among the public continuing to decline. The Bank of England’s own Decision Maker Panel survey of businesses also suggested pay and price expectations have eased in recent months.
And there remain good reasons to think the fall in inflation since last autumn will gather pace, as powerful base effects kick in, a slowdown in pipeline price pressures feeds through to consumer prices, household energy bills fall on the back of a significant decline in wholesale prices, and the consequences of a marked slowdown in monetary growth leaves its mark.
May’s inflation report, due on Wednesday, will also influence the Bank’s thinking….
Martin Lewis: Chancellor and banks missed opportunity to protect mortgage holders
Consumer finance champion Martin Lewis has criticised the government, and the financial sector, for not taking action sooner to protect mortgage-payers from rising interest rates.
In a post on Twitter, Lewis explains that he warned last autumn of a “mortgage ticking time bomb” as people’s existing fixed-rate deals came to an end.
Lewis says, a mortgage summit called last December by chancellor Jeremy Hunt proved to only be “a missed opportunity talking shop...”
Lewis says he pushed for “easy to agree forbearance and help measures” to assist those facing higher mortgage costs,
But, Lewis says, his push for real changes met push back from the banks, and sometimes from the FCA, the City regulator, too.
For example 1. Any help options should be easily reversible on request. Eg if you extend your term, to reduce payments, when things improve you should have an automatic right to reduce the term. Knowing there is a reversibility option gets rid of a barrier to action - without reversibility people are scared to be locked into a longer mortgage (which means more interest).
2. It should have no or minimal impact on people’s credit scores (as it did in the pandemic). Again negative credit file impact is a big barrier to action - as it leaves people reticent to make a decision, which can lead to snowballing problems.
None of the suggestions have seen any real fruition. The attention faded, especially when rates didn’t rise as sharply as first expected.
They can't say they weren't warned!
— Martin Lewis (@MartinSLewis) June 19, 2023
Last Autumn, I raised an alarm about a coming potential mortgage ticking time bomb with millions facing huge bill-shock as their fixes end.
So much so the Chancellor called a mortgage summit; sadly it was just a missed opportunity talking…
Updated
Next has jumped to the top of the FTSE 100 leaderboard after upgrading its profit forecasts today.
Next’s shares are up 4.7%, while other retailers such as Primark-owner AB Foods (+2.5%) and Frasers (+2%) are also gaining.
Next hikes profit forecasts thanks to warm weather and pay increases
Just in: High street retailer Next has just upgraded its profit forecasts for the year, and cited warmer weather and recent pay rises received by UK workers.
In an unscheduled trading update, Next says that trading in the last seven weeks has been “materially better” than the guidance it issued in May.
Full price sales in the first seven weeks of the second quarter were up +9.3% versus last year, strongly ahead of Next’s guidance of a 5% fall in full price sales.
In the period, Next have beaten its full price sales estimates by £93m.
It has now lifted its full year profit guidance by £40m to £835m.
Next tells shareholders that the recent change in weather (after a damp and windy spring) has boosted sales, saying:
The onset of warmer weather has made a significant difference to our performance, particularly coming after a wet and cold April.
Next also suspects that annual salary increases are spurring spending at its shops – a comment that may alarm the Bank of England as it tries to prevent inflation becoming embedded in the economy.
Next explains:
For example, during April annual inflation was running at 8.7% and monthly inflation was 1.2%; if an individual received a pay rise of 5.0%, then their real income would have risen by 3.8% in that month.
We do not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards.
Last week’s employment report showed that regular pay excluding bonuses increased by 7.2% in the three months to April, the fastest in 20 years.
The rise in UK mortgage rates to 6% will put a tighter squeeze on borrowers who need to remortgage.
Economists at ING explain that a typical houseowner refinancing their home loan would be paying close to 40% of their average disposable income on mortgage repayments.
ING say:
If we look at the mortgage market – the main transmission mechanism for interest rates – then 6% rates would mean a homeowner with a 75% loan-to-value ratio would, on average, be paying close to 40% of their disposable income on repayments. That compares to roughly 30% at the peak going into the 2008 financial crisis.
The difference between now and then is that the share of households with a mortgage has fallen, and more people own their home outright now. And more importantly, around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates. The result is that the length of time rates stay elevated is now arguably more important than the level, and the impact of 5%+ mortgage rates for a prolonged period would be large.
The Bank of England is also right to highlight that the impact of past rate hikes is only now beginning to bite as a greater number of mortgage holders refinance.
The curent turmoil in the mortgage market could have long-term consequences for retirement plans and pension incomes, warns Gary Smith, partner in financial planning at UK wealth manager Evelyn Partners.
Smith says the increase in mortgage costs, and rents, is bound to have a disruptive effect on saving (assuming people had enough money left over to put aside anyway), adding:
“Impacts could be felt right from younger savers looking to get on the housing ladder who cut back on pension saving, to the middle-aged who find themselves taking on marathon mortgages that run well past state pension age, to those who have retirement on the horizon and face tricky calculations around how long their pension pot will last.”
Smith fears that much of the £15.7bn increase in annual mortgage payments by 2026, predicted by Resolution Foundation on Saturday, could come from either reduced pension contributions or from savings that were intended for the medium to long term.
The Liberal Democrats have repeated their calls for the government to intervene to help struggling mortgage payers, PA Media reports, as average fixed mortgage costs rose again today to the highest since December.
Liberal Democrat leader Ed Davey said:
“The time for the Government to step in is now, anything else will be a disaster for struggling families worried about losing their homes.
“This Government is sitting on their hands, giving no help to ordinary working people who suffer. It’s just plain wrong.
“Liberal Democrats are calling on Rishi Sunak to finally listen to those who need help and immediately end this mortgage horror show with a mortgage protection fund.”
The Lib Dems first proposed a £3bn fund last November, which would provide grants of £300 per month to cover rising costs mortgage costs to prevent a home-owner being repossessed.
However, such a proposal is controversial – as it could undermine the Bank of England’s attempts to cool the economy, forcing interest rates higher.
Plus, it would mean taxpayers effectively underwriting a major asset purchase, and prop up house prices at a time when some people are hoping they keep falling so they can get onto the housing ladder…
Renters have already seen a £2,820 increase in #rents for new lets in last 5 years so on a par with the £2,900 hit estimated by @resfoundation for mortgagees where the impact more drawn out - renters tend to be on lower incomes with more unsecured debt https://t.co/NkmHdWsalY pic.twitter.com/ElrJwT8Mej
— richard donnell (@richard_donnell) June 19, 2023
UK interest rate swaps show >50% chance of rates hitting 6% by February
Elsewhere in the City, the money markets are indicating a greater than 50% chance that UK interest rates will hit 6% by next February.
That’s up from just under 50% on Friday, Reuters reports.
🚩🚩 UK 2-YEAR GILT YIELDS RISE TO 5% FOR FIRST TIME SINCE 2008, UP 7 BASIS POINTS ON DAY
— PiQ (@PriapusIQ) June 19, 2023
**UK INTEREST RATE SWAPS SHOW GREATER THAN 50% CHANCE OF BOE RATES REACHING 6% BY FEB 2024 pic.twitter.com/6N7y3aRLaZ
This calculation is based on the price of interest rate swaps, which are derivatives contracts used by investors to hedge against rising borrowing costs, or to speculate on future moves in interest rates.
Updated
Sterling has risen to its highest level against the euro in 10 months, as traders anticipate a rise in UK interest rates on Thursday.
The pound has touched €1.1736, the highest level since last August.
Raffi Boyadjian, lead investment analyst at XM, says both the Bank of England and the European Central Bank are likely to keep raising borrowing costs, while the US Federal Reserve took a pause in its tightening cycle last Wednesday.
The Bank of England in particular probably has the most ground to cover still amid more rampant inflation than in other countries and the ongoing resilience of the UK economy. The pound is trading above the $1.28 level for the first time since April 2022, while the euro is back above $1.09.
Heading into Thursday’s meeting, the risks for sterling are symmetrical as the BoE could surprise with a 50-bps hike, but it could also signal that it is nearing the end of its tightening cycle.
Updated
Shares in UK housebuilders have dropped to a three-month low, after Rightmove reported this morning that asking prices for homes dipped a little in June (see opening post).
The UK homebuilders index is down 0.8%, to its lowest since 20 March, as City traders react to signs that the summer slowdown has started early this year.
Bristol tenants facing ‘Wild West’ rental market, warns mayor
Renters are also feeling the squeeze from the cost of living crisis.
Bristol’s local mayor has warned today that tenants in his city are facing a “Wild West market”, and argued for rent controls in the housing market.
Marvin Rees told BBC Radio 4’s Today programme:
“There has been no real change in our regulatory powers as a local authority to keep up with the changing nature of the housing market. We are taking old tools to new challenges.”
On rent controls, Rees said:
“I recognise there is complexity but what we certainly need is intervention in the rental market.
“Whether you call that control or not is up to you, but there needs to be an intervention because allowing this Wild West of the rental market with rents growing out of all pace to people’s income…
“What we have at the moment in Bristol is, over the last decade, rents have gone up about 52% and wages have gone up 24%.
Updated
The Bank of England could be split this week, when policymakers meet to set interest rates.
James Lynch, Fixed Income investment manager at Aegon Asset Management, predicts that most members of the Bank’s Monetary Policy Committee will vote to tighten again.
Lynch says:
“On the voting, we could be back to three-way splits on the committee again, with two voting for unchanged, one or two voting for a 50bps hike, and the remainder in the middle voting for 25bps.
On the finer details of the forward guidance, we have the minutes of the meeting to go on, but this is not a policy review meeting where we get updated fan charts, and there won’t be a press conference – so it’s not the most useful meeting in the event of a big change in guidance.
MPC members Silvana Tenreyro and Swati Dhingra are seen as most likely to vote for no change, having opposed recent increases at past meetings.
Two-year gilt yields hit 15-year high
UK government short-term borrowing costs have hit a 15-year high, in a move that signals more pain for mortgage holders.
11am UPDATE: The yield, or interest, rates on two-year government bonds has just hit 5% 4.995% this morning. That’s the highest level since July 2008, just before the financial crisis erupted.
Those two-year gilts are used to price fixed-term mortgages. They are rising as the financial markets anticipate the Bank of England will raise UK interest rates on Thursday, for the 13th time in a row, to 4.75%.
Updated
Average two-year mortgage rates hit 6%, what the brokers say
Riz Malik, founder and director at R3 Mortgages, warns that rising mortgage rates are creating a ‘ticking time bomb’ in the UK property market:
We urgently needs a cross-party Mortgage Task Force to find potential solutions to this ticking time bomb.
This should be comprised of economists, lenders and other stakeholders who are actively involved in the mortgage market. We need action or the impending financial earthquake is going to send shockwaves across the country.
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, argues that the Bank of England should be given the leeway not to raise interest rates to squeeze inflation.
The Government need to change the mandate of the Bank of England so that they put more weight on the future of the economy and give their inflation target a longer term time horizon.
This would allow them to maintain their independence but take their foot off the accelerator when it comes to rate hikes. Confidence breeds confidence and a pause in rate rises will mean lenders stabilise their product offerings and the resultant competition drives prices downwards.
[the Bank’s target is to keep inflation at 2% – so is under pressure to keep raising interest rates as inflation was 8.7% in the year to April].
Buy-to-let mortgage rates have also risen again.
Moneyfacts reports that the average two-year fixed rate on a BTL mortage increased from 6.21% on Friday to 6.30% today.
The average five-year fixed rate has gone up too, from 6.17% to 6.23%.
The number of buy-to-let mortgage products on the market has fallen this morning, to 2,515 from 2,589 on Friday.
According to @Moneyfacts_couk 2y fixed mortgage rates broke past the 6% barrier today after a surge in the yields of short-dated gilts. But it’s the buy-to-let market that is hammered the most with increases up to 6.3% on 2y fixed & 6.23% for 5y deals pic.twitter.com/8ROCXljozd
— Emma Fildes (@emmafildes) June 19, 2023
The Labour party also aren’t pledging any specific help for mortgage payers today.
Asked about the party’s plans on Sky News, Sir Keir Starmer said Labour would tighten up the windfall tax on oil and gas companies to yield more money to help reduce energy bills.
He says:
That wouldn’t be a direct mortgage payment, but it would help people with their bills.
Starmer argues that the situation in the UK is worse “because of that terrible mini-budget”, which has created “a Tory premium on people’s mortgages.”
In reaction to the Prime Minister ruling out helping those struggling with mortgage payments, Labour leader Sir Keir Starmer says they would put "concrete plans on the table" that allow a reduction in all household bills.https://t.co/PAiZ4D1jU3
— Sky News (@SkyNews) June 19, 2023
📺 Sky 501 pic.twitter.com/WU2jmBXX6b
Q: So the Labour wouldn’t help people pay their mortgages?
Starmer says Labour is trying to put “concrete plans” on the table to reduce bills through the oil and gas windfall tax, to help families with their overall bills.
He says:
We need a long-term solution to this, we can’t have sticking plasters any more.
That requires a stable plan to grow the economy, properly. That hasn’t happened for 13 years.
Starmer adds that Labour’s plan to make the UK a clean energy superpower by 2030 would help lower bills in the long term.
Updated
Lenders have been ‘scrambling’ to raise mortgage rates over the last month, says ITV’s Joel Hills, after UK inflation failed to fall as much as hoped in April.
The interest rate charged on the average 2 year fixed rate mortgage deal has edged above 6% this morning.
— Joel Hills (@ITVJoel) June 19, 2023
On 22th May (when it stood at 5.34%) @rightmove reported that asking prices had reached a new record high and said the market was “defying start-of-the-year-expectations”…
…on 24th May, lenders began scrambling to raise mortgages rates when ONS published concerning evidence that inflation is feeding itself.
— Joel Hills (@ITVJoel) June 19, 2023
Rightmove says the average asking price for new listings dropped “marginally” (by £82) to £372,812 in the four weeks to June 10th.
Average two-year fixed mortgage rates hit 6%, first time this year
Newsflash: the average rate on a two-year fixed rate mortgage has risen over 6%, for the first time in six months.
Financial information provider Moneyfacts reports that the average two-year fixed rate has increased to 6.01% today.
That’s up from 5.98% on Friday, and 5.26% at the start of May. It takes average two-year fixed mortgage rates back towards the levels seen in the chaos after the mini-budget last autumn (when they hit 14-year highs).
This is the first time since the first week of December 2022 that two-year fixed-rate mortgages have cost 6% or more.
Longer-term fixed rate mortgages also become more expensive, with the average five-year fixed rate rising to 5.67% today, from 5.62% on Friday.
This reflects financial market expectations that the Bank of England will raise interest rates several times this year.
As well as a quarter-point hike on Thursday, to 4.75%, the money markets predict rates could hit 5.75% by the end of the year.
and the Resolution Foundation estimate the average rate on a two-year fixed deal would hit 6.25% this year
— Simon Dishman (@SimonDishman) June 18, 2023
The Mortgage Crunch: https://t.co/3zMz6x535o by @simonpittaway pic.twitter.com/hnzFyWmSLZ
Mortgage providers continued to cut deals too.
The product count has fallen from 4,923 on Friday to 4,683 this morning, Moneyfacts adds.
Updated
Although rising interest rates are a blow to borrowers, they are welcome news for those retiring.
The average rate on an annuity, which provides a regular guaranteed income in retirement, has jumped by 20% over the last 12 months, according to financial services group Hargreaves Lansdown.
They report that a 65-year-old with a £100,000 pension is able to get up to £7,144 per year, up from £7,027 two weeks ago, and an increase of a fifth on the same period last year.
The last time incomes were this high was November 2022, after the mini-budget chaos drove up the cost of government borrowing (meaning UK bonds paid a higher return).
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says:
After being relegated to the side lines after Freedom and Choice annuities are once again taking centre stage and attracting more notice.
This increase is likely to be in response to the looming rate rise we are expecting this week. Interest rates are one factor that determine annuity rates and while it is by no means a certainty, we have seen annuity incomes increase in line with interest rate rises over the past two years. With more increases rumoured to be on the way we could see further income boosts in the coming months.
Though they have dropped in popularity in recent years annuities should always be considered where there is a need for guaranteed income in a retirement strategy. The state pension will offer secure income up to a certain level but if you need more, and you don’t have something like a defined benefit pension scheme, then annuities are an important option.
Housing market analyst Neal Hudson of consultancy BuiltPlace shows in this tweet how mortgage holders in the South East are more vulnerable to rising mortgage rates:
It’s borrowers with higher loan-to-income ratios that will see their mortgage repayments rise most thanks to higher rates.
— Neal Hudson (@resi_analyst) June 17, 2023
This map shows the proportion of mortgaged house purchases that were over 4x income in 2021 by postcode area: pic.twitter.com/IbdZ4Gn3zP
And here’s Jon Boys, economist at the CPID (Chartered Institute of Personnel and Development) on the generational impact:
I've been thinking about the housing crisis, rents rising and higher interest rates feeding into mortgages. Who will be hit? It's the kids of course. 91% of under 16s live in mortgaged or rented accommodation compared to 27% of over 65s (72% of whom own outright). pic.twitter.com/vLCbvuUWUn
— jonathanboys (@JonathanBoys) June 16, 2023
Rishi Sunak says no extra help for homeowners struggling with their mortgage
Prime minister Rishi Sunak has ruled out providing any extra help for households who are struggling with mortgage payments.
Speaking on ITV’s Good Morning Britain, the prime minister declined to back extra support for mortgage holders, despite concerns that millions of households facing a dramatic rise in borrowing costs as they remortgages their home loans in coming months.
Instead, he said the government needs to “stick to the plan”, and that his top priority remains bringing inflation down.
Sunak said:
“I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people.
“We’ve got a clear plan to do that, it is delivering, we need to stick to the plan.
“But there is also support available for people. We have the mortgage guarantee scheme for first-time buyers and we have the support for mortgage interest scheme which is there to help people as well.
Is the Government going to do anything to help people who are facing increases in their mortgage rates? @GMB questioned @RishiSunak who said: 'We've got to stick to the plan.' pic.twitter.com/oSqDT8fVuX
— Good Morning Britain (@GMB) June 19, 2023
On Friday, the Liberal Democrats called for a £3bn mortgage protection fund to be set up to offer help to families at risk of losing their homes, as fears of a jump in repossessions rose.
Mortgage experts fear the average rate on a two-year fixed-term mortgage could hit 6% today, having climbed to 5.98% at the end of last week.
But Sunak’s comments do square with the reports last night that Treasury insiders insisted that taxpayers will not bail out mortgage holders, as such state intervention would be the “most dangerous thing a government could do”.
EXPRESS: Taxpayer will not foot the bill for mortgage payout #TomorrowsPapersToday pic.twitter.com/uvmvv9DftS
— Neil Henderson (@hendopolis) June 18, 2023
Updated
House prices: What the estate agents say
Rightmove’s survey covers asking prices, not the actual amount which buyers agree to pay for a home.
Jeremy Leaf, north London estate agent, reports that sale prices are ‘softening’, saying:
‘As expected, recent mortgage market turbulence is dampening the increase in prices and activity which we would usually see at this time of year.
‘However, these are, of course, only aspirational not achieved values. On the street, prices are softening as cash and equity-rich buyers in particular continue to hold sway over those relying on increasingly hard-to-obtain loans.
‘Negative publicity is helping lower expectations and encourage more seller realism.’
Tom Bill, head of UK residential research at Knight Frank, says sentiment has ‘taken a hit” in the past few weeks:
“Recent rate volatility hasn’t yet had a material impact on housing market activity because, if anything, those holding mortgage offers are keen to move sooner rather than later. That said, sentiment has taken a hit in recent weeks, which will keep a lid on trading volumes later this year.
Ironically, strong wage inflation rather than the mini-Budget is now the main brake on the housing market although the outlook will only become clearer this week. Those buying, selling or re-mortgaging will hope the Bank of England isn’t faced with a second ugly underlying inflation reading on Wednesday.”
Rightmove’s monthly house price report also shows regional differences in the markets
In London, average asking prices fell by 1.6% in the month, while they dropped 0.6% in the East Midlands and by 0.5% in Yorkshire and the Humber region.
But average asking prices rose 4.9% in the North East, followed by a 1.8% gain in Wales.
Victoria Scholar, head of investment at interactive investor, says:
“Rightmove’s UK asking prices dropped for the first time since 2017 but only by £82 on average. Versus last year, house prices in June rose by 1.1% to an average of £372,812. There are significant regional differences; the North East saw average property prices increase by 4.9% to £188,414 whereas London prices fell by 1.6% to £685,241.
The housing market tends to get a seasonal boost around this time of year, and consumer confidence has been picking up. However the market is still grappling with rising interest rates, falling real wages, sluggish economic growth and volatility in the mortgage market.
This week the Bank of England is expected to raise interest rates again by 25 basis points while the latest UK inflation figures [on Wednesday] are expected to point to price pressures which are easing but remain sharply above target.
Introduction: Surging mortgage rates bring early summer slowdown
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Rising mortgage rates are cooling the UK housing market, bringing forward the usual summer slowdown in the housing market.
Asking prices for British homes fell in June for the first time in six years, property website Rightmove reports this morning.
Rightmove’s latest data shows that average new asking prices dipped, slightly, this month for the first time this year. It suggests that some sellers are pricing their properties a little more competitively, as higher borrowing costs dampen the market.
Average new seller asking prices slipped by £82 this month to £372,812. This is the first monthly drop in new asking prices this year, and the first at this time of year since 2017, Rightmove reports.
The number of sales being agreed has dropped marginally, and in the last two weeks is 6% behind the same period in 2019; twice as fast as the 3% drop recorded in May.
Stubborn inflation & rate rises cause summer mkt slowdown to come early.
— Emma Fildes (@emmafildes) June 19, 2023
In June 23 AVG ASKING prices dropped by £82 to £372,812. The first of many potential falls this year. Despite this activity is 6% higher than in a 2019 mkt but sales lag 6% behind @rightmove pic.twitter.com/oxPBHuCdzj
On average, over the previous ten years prices have risen by 0.6% at this time of year. Rightmove suggests that constraints on buyer affordability due to higher borrowing costs, and “more pricing realism from new sellers” have brought forward the usual summer slowdown.
Tim Bannister of Rightmove explains:
Average new seller asking prices, the first and leading indicator of new trends in the market, have dropped slightly this month, signalling that the belated spring price bounce has quickly turned into an earlier than usual summer slowdown.
We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid.
The squeeze on borrowers is expected to worsen this week, with the Bank of England expected to raise interest rates on Thursday from 4.5% to 4.75%.
One Conservative MP warned last weekend that Britain is heading for a “mortgage catastrophe”, due to the surge in borrowing costs this year.
Lucy Allan, the Tory MP for Telford, said:
“I don’t think we have quite understood the interest rate catastrophe.
People [are] telling me their monthly mortgage payment is exceeding their salary. That is unsustainable.
“Constituents do ask about ‘support for unaffordable mortgages’. I say ‘talk to your lender,’ but the reality is they need to sell sooner rather than later and that’s a hard message to hear.”
Allies of chancellor Jeremy Hunt have ruled out giving any direct fiscal support to households struggling with soaring mortgage costs.
Hunt, according to Treasury sources, has concluded that such an intervention would drive up government borrowing and fuel inflationary pressure, leading to even higher interest rates.
More than a quarter of UK homeowners on a fixed-rate mortgage are heading for sharp increase in monthly payments before the next election.
Figures shared with the Guardian by UK Finance, the banking industry trade body, show more than 2.4m fixed-rate homeowner deals will expire between now and the end of 2024.
According to the Resolution Foundation, total annual mortgage repayments are now on course to rise by £15.8 billion by 2026, as households move onto new, higher fixed-rate deals.
That means an extra £2,900 cost for the average household re-mortgaging next year.
Our chart of the week is from our latest research, looking into the mortgage crunch.
— Resolution Foundation (@resfoundation) June 17, 2023
We found this crunch is bigger, but more concentrated, than ones we've seen before.
Full report: https://t.co/XUOTH263OB pic.twitter.com/ybnKDni6KE
The agenda
All day: Paris Air Show
9am BST: ECB Survey of Monetary Analysts
3pm BST: NAHB/Wells Fargo index of US housing market
Updated
