Rising UK Mortgages, Yields Pinch Homeowners and Sunak Alike
Comment of the Day

June 19 2023

Commentary by Eoin Treacy

Rising UK Mortgages, Yields Pinch Homeowners and Sunak Alike

This article from Bloomberg may be of interest. Here is a section: 

The UK housing market is under particular pressure from a triple whammy of pricey borrowing, economic uncertainty and high inflation. While the average two-year fixed-rate home loan surpassed 6%, the five-year fixed-rate deal climbed to 5.67% after breaching 5.5% for the first time since January last week.

Eoin Treacy's view

When my parents bought their first home in the mid-1970s they secured a fixed interest rate for the term of the loan. By the time they sold that house twenty years later, the repayment cost was negligible, and the availability of fixed rate mortgages has evaporated. That was a happy circumstance for my parents, but it was funded by government efforts to support home ownership that were unsustainable. Today prices are high, rates are floating higher, government debt is already problematic and young people are being squeezed. It’s a combustible mix.

5-year Gilt yields hit a new closing high today amid speculation the Bank of England will have no choice but to continue raising rates. The harsh reality is interest rate sensitive inflation can be controlled in this way, but sticky inflation needs harsher treatment. Hitting demand and forcing malingers back into the work force is unpalatable for any administration. It’s unlikely the current government can survive that outcome.

In fact, the astute political move would be for the Conservatives to lose the next election and let the clean-up be Labour’s problem. They may not have much choice in the matter.

The Pound is short-term overbought as it tests the region of the 1000-day MA. Some consolidation appears likely, but the Dollar is also faced with sticky inflation and an administration with even less willingness to address intransigent issues. That suggests the Pound’s uptrend will consolidate rather than reverse.

The FTSE-100 was led lower today by the mining and home building sectors. The FTSE-100, FTSE-250 and AIM 100 all appear to be rolling over. 

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