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Having climbed to over 6% in Autumn in the wake of former Chancellor Kwasi Kwarteng’s mini-Budget last year, mortgage rates have now fallen three months in a row despite the Bank Rate moving in the opposite direction.
According to Forbes, the average 2-year mortgage rate has dropped to 4.62% today whilst 3-year and 5-year fixed rate mortgages are pegged at 4.78% and 4.40% respectively. For lower loan-to-value remortgages, options are available at below 4% -an incredible improvement on the average rate of 6% in November 2022.
In more good news, the average amount of time a mortgage is available before it is withdrawn has increased to 28 days, the highest level since March 2022, and up from just 15 days in January. Product choice has increased as the market stabilises with 4,341 different deals currently available compared to 2,258 options in October 2022.
Why did mortgage rates spike in 2022?
Mortgage rates spiked last year as a result of central banks increasing borrowing costs to curb demand and mitigate hyperinflation. The steep rise in borrowing impacted the rate at which lenders borrow money on fixed-rate deals. This resulted in mortgage lenders reducing and repricing products which lead to a decrease in the number of mortgage options available to buyers. Only 2,258 products were available in October 2022.
What should I do?
Think about remortgaging if you are sitting on a variable rate, the average standard variable rate is 6.84% according to Zoopla. Remortgaging to a 5-year fixed rate deal of 5.2% could reduce costs by £200 a month on a £200,000 mortgage.
There is more competition for long-term fixed rate mortgages due to volatility, with the gap between 5-year and 2-year products currently at 0.24% -the largest margin for 5 years.
According to Zoopla, UK mortgage rates are likely to rest between 4% to 5% over the next few months which is indeed higher than in previous years but relatively cheap in a historical context for mortgage rates. The era of cheap money is over. The good news is that lower mortgage rates will reduce any downward pressure on home prices in 2023 as more entrants will be in the purchasing market. RightMove has already confirmed that demand is stronger than expected with an 11% rise in enquiries made to agents in the last two weeks alone.
If you’d like to discuss your options for investing in the UK, reach out to us here and we can answer any questions you may have.
Manchester has long been famous for its rich history and title as World’s First Industrial City. In recent years it has diversified into a modern metropolis with a thriving cultural and leisure scene, as well as first class employment opportunities.
We asked our Global Accounts Director about his recent trip to Manchester having grown up nearby and seen it reinvent itself into a future-oriented Northern Powerhouse. Take a look at his insights below.
Manchester has always held very fond memories for me, as I grew up in Lancashire and spent many weekends heading to the city to go shopping with my family or to meet up with friends. So, when I visited Manchester whilst on site visits for IP Global, and what must have been 15 years since last being there, I was absolutely stunned by the change and development of what was already a great city. It truly is a fantastic place and what a location to live in and be a part of this vibrant northern cosmopolitan city.
Many people ask where to buy in Manchester, which is of course quite a personal decision as it does depend on what you are looking for. However, when asked the question myself, where would I live in Manchester today, I certainly have some good ideas as to where that would be.
In short, if I were to live in Manchester today, then I would say that it would most likely be just on the outskirts of the city centre such as Salford Quays. This is not only a highly sought-after location but has the buzz and vibrance of a very cool place to live. Right by the water edge of the quays and with MediaCityUK being located here, it has so much to offer.
With over £650 million of investment to date and a further £1 billion of private investment into the area, it has so much scope for incredible growth. Being right in the heart of things and having businesses such as the BBC, ITV Studios and SIS Live being based here, it will always be a draw for the creative and professional investors. It has a plethora of shops, restaurants, bars and gyms that one could spend every weekend exploring new places and still be uncovering new and upcoming locations to visit for years to come.
Now if parents were to ask me where to live in Manchester, then this answer is once again a very personal one but a clear winner for me would be Altringham. What was once a slightly dilapidated part of Manchester, has now become one of the most up-market places to live in the area. Not only has it had a complete rejuvenation of its high street but it also boasts some excellent schools locally and has great access into the city. With lots of top restaurants, bars and shops, this will appeal to most families.
This wonderful city has the second highest absolute number of students, just behind London, so is particularly well catered for this type of market. Students have an abundance of choice when it comes to looking for great locations to live in Manchester. The first that springs to mind for me would be Chorlton-on-Medlock which is just South of the city center and has a huge array of student accommodation options and having great access to the various university campuses along with being in close proximity to the city center and all that it has to offer, it seems like a great choice. Prices are much more affordable than the city center also, which will allow students to get ‘more bang for their buck’, which is quite often a big factor for students to consider.
As an investor, I would have to say that both Salford Quays and Chorlton-on-Medlock would be good options due to the high demand for property there but one that stands above the rest for me is Trafford. The home of Manchester United of course but also is the region’s largest hub of businesses and enterprises with the highest number of companies per capita. There is also a burgeoning bar and food scene, where many young professionals congregate after a day’s work.
The connectivity of Trafford is excellent and with Manchester airport only 10-minutes’ drive away, it will have appeal to the local and international market. Locally, it is well connected through extensive rail networks and light rail tram systems which will soon connect to the High Speed 2 (HS2) rail network.
With strong rental yields on offer and healthy capital appreciation to be had, this would be my choice for investment into the northern powerhouse that is Manchester.
Although, quite a ‘whistle stop’ tour of the city and the area, I was once again so pleased to be back in Manchester, which continues to grow, develop and adapt to the ever-changing world we find ourselves in today. I can’t wait to visit again.
Are the UK house prices set to fall? It’s not that simple.
Most property markets in the UK have seen double digit percentage growth over the past 24 months, leading many to ask if the market’s overheated. Coupled with rising interest rates and inflation, what could this mean for property investors? Read on to find out.
A recession is when there are two consecutive quarters of economic retraction in an economy, measured by Gross Domestic Product (GDP) - which is the measure for the total output of an economy. Recessions are not uncommon but can vary widely in how substantial they can be. The UK last experienced a recession in early 2020 due to the Covid-19 pandemic and despite only lasting two quarters, GDP fell by more than 21%.
A recession can be caused by numerous factors. Before the covid pandemic, the 2008 global financial crash (GFC) caused by the subprime mortgage crisis in the USA led to five quarters of economic decline. Before that was the 1990/91 recession, which was triggered in-part by the increasing of interest rates to combat high inflation. Since the great depression of 1930, a recession has not lasted more than 5 quarters in the UK.
Typical market crashes, where house prices fall in excess of 10%, have generally been in tandem with deeper economic recessions, having only occurred twice in the last 70 years. These crashes accompanied both the early 90s recession as well as the 2008 global financial crash.
The 1989 Recession and the 2008 Global Financial Crisis have had a very strong influence on the housing market crash trends.
The 1989 Recession
In late 1989, the Bank of England base rate hit its highest level in the last 43 years at a staggering 14.88%. This was one of the main contributing factors for economic downturn. As consumer spending and business confidence fell so did property transactions and hence prices, dropping by some 20% in average between 1989 and 1993. During that period, London was worst hit with the
capital’s prices falling by 32%.
The 2008 Global Financial Crisis (GFC)
The GFC found its epicentre in the U.S mortgage market, as lenders became more and more relaxed allowing high risk mortgages in order to sell profitable mortgage-backed securities to investors. A domino effect amongst global financial institutions meant other countries quickly saw their markets stall.
In the 2006/2007 financial year, the UK registered 141,893 residential transactions per month. This fell sharply in the following two financial years with 2007/2008 seeing a fall of 12% to 124,401 per month before falling by a further 47% to just 66,338 per month in 2008/2009. In the UK, prices fell by 15% on average between January 2008 and May 2009, however large swatches of the
UK had recovered to their pre-crash pricing within just 3 years. Inflation across the year was 3.6% over a 50% increase from the previous year at 2.3%.
The current market environment is very different to that of past years where parts of the economy are struggling with growth. The UK is still enjoying low unemployment levels.
The stamp duty holiday offered during the pandemic, whereby a tax break on the first £500,000 of a property was given led to a surge in transactions across the UK as buyers scrambled to take advantage. Between April 2010 and financial year ending April 2020, the average number of property transactions was 92,687 per month. During the stamp duty holiday and the two financial years to April 2022, average monthly transactions leapt to 106,456, 14.9% above the previous 10 years. Due to this surge, it was to be expected that following years would see a quieter market, however, provisional transaction estimates from Zoopla predict that 2022 will still offer a strong number of transactions at 100,000 per month, still well above the 10-year average to April 2020.
Raising interest rates are at the forefront of most buyers’ minds, raising further questions around affordability. Following the GFC in 2008, the UK has enjoyed an era of historically low interest rates which has both positives and negatives. Between 1971 and 2022 the average interest rate (base rate) in the UK has been 7.15% so in context the current rate of 1.75% is still attractive and despite seeing two recent rises over the summer of 2022, the UK’s base rate still sits lower than that of Australia, Canada and the U.S at 1.85%, 2.5% and 2.5% respectively.
1. Having Low Unemployment Reduces The Risk of Distress
The UK unemployment rate released for May to July 2022 is 3.6% the lowest rate since the same period in 1974. With typically anything under 4% considered full employment in economic terms, this is very positive news for the housing market.
2. Highly Leveraged Mortgages Are Rarer Than They Used To Be
In 2006, approximately 40% of UK homes were owned with a mortgage. That proportion has now fallen to 32%, primarily because of an increase in private renting as well as the ageing UK population, meaning the proportion of homes owned outright has also risen and is now the largest tenure in the UK at 33%.
Furthermore, the number of highly leveraged households in the UK is now very low following the mortgage review that was undertaken post-GFC. The cost of debt remains relatively low as well. And while that may be rising as the Bank of England raises interest rates, they still remain low by historical standards as the graph below shows. It is therefore expected that there is still capacity for mortgaged households (compared with pre-GFC) to absorb the cost increase. For every £100,000 borrowed on a standard 25-year mortgage term, a 25 base points rise in the base interest rate equates to an estimated additional £12 per month costs.
3. Low Housing Supply Is Not Keeping Pace With Demand
Since the late 1970s the UK has failed to build the number of homes needed to meet the 300,000 per annum national target, typically falling short by about 100,000 homes per year. Between 2015 and 2019 the UK build an average of just 190,150 new homes per annum, falling short of the target by 549,250 homes across the 5 years.
In conclusion, if taken at face value the UK market appears to be up against significant challenges. However, when digging into the fundamentals that caused previous crashes, it is evident there are intrinsic differences between then and the current market environment. To learn more about how IP Global can help you navigate economic downtowns intelligently, submit your details here and a Wealth Manager in your region will be able to provide more insight.
As the spotlight shines on Birmingham hosting the Commonwealth Games this week, we’ve answered some of the key questions regarding the economic impact and how it will shape and boost the community of the city. Read on to find out everything you need to know about ‘Birmingham 2022’.
What is the purpose of the Commonwealth Games?
The Commonwealth Games has a notable reputation as the second most important international multi-sporting event after the Olympic Games. Comprised of 72 nations the Commonwealth represents one third of the world’s total population. It takes place across 11 days every four years and has over 5000 athletes competing in 19 different sports. The purpose of the event is to build peaceful, sustainable and prosperous communities globally by inspiring Commonwealth citizens through the ambition and impact of their athletes. Having first started in 1930, the Games have since put a spotlight on host cities and uplifted communities immensely through bolstering both economic activity and local area regeneration.
How have the Commonwealth Games affected economies?
Historically, host cities have seen tremendous economic growth and prosperity from the Commonwealth Games both in preparation for hosting it and, in the ripple effect, long after the spotlight has left the city. The previous Commonwealth Games was hosted in 2018 at the Gold Coast, Australia and contributed £1.2 billion to the economy. The improvement to infrastructure and new sporting facilities drove the development of related industries (such as engineering, construction and tourism), stimulating job growth across the region.
A new report by the Commonwealth Games Federation and PwC has revealed a consistent economic boost of over £1 billion across previous host cities as a result of the Games. Host cities have seen fiscal dividends from national, regional and other levels of government. In the UK, Manchester (host of the 2002 Games) saw £2.7 in investment from the national and devolved government for every £1 of local government spending on total Games-related expenditure, whilst Glasgow (host of the 2014 Games) saw £3 for every £1 of local government spending. The report also indicated that cities have seen up to a 25% increase in tourism in the three years after hosting as well as up to £400 million of Commonwealth investments and trade deals. The Games have both built and showcased Manchester and Glasgow’s economic profiles and catapulted interest in the vicinities as desirable locations to live and work.
What is the impact of the Commonwealth Games on Birmingham in 2022?
In December 2017, Birmingham was awarded the rights to host the 2022 Commonwealth Games, the largest sporting event in the UK since the 2012 Olympic Games in London and certainly the largest to ever come to the West Midlands.
Like Manchester and Glasgow before, the Birmingham Games has been a catalyst for investment both directly and indirectly. The city secured a £778 million investment for hosting the Games, and Birmingham City Council estimated around 4,500 jobs were created as a result.
In terms of major regeneration hotspots, the Alexander Stadium has received £72 million worth of redevelopment and been upgraded to hold 40,000 spectators for the Games. The city centre has been renewed with £25 million invested to revitalize public spaces and improve security measures at 19 locations. Infrastructure has seen immense improvement with £500 million spent on roads, rail and cycling routes in the vicinity of Perry Bar where the Games will be hosted. 5,000 homes are also expected to be newly built.
The Games will also generate additional revenue through ticket sales, sponsorship, merchandising and the sale of broadcast rights. The city will welcome over 1 million spectators from around the globe over the course of the 11-day event that started on July the 28th. Furthermore, 1.5 billion people are expected to tune in virtually to watch, elevating the city to the world stage.
How will the Commonwealth Games impact Birmingham property and rental prices?
The UK is currently experiencing a country-wide housing stock shortage and Birmingham is no different. Being so well located, the city has seen an explosion in house price growth and demand is set to further grow underpinned by the publicity of the Commonwealth Games.
Historically, there has been a direct impact of the Commonwealth Games on a host city’s property prices. Most recently, Glasgow saw a property price decrease of 8.6% in the five years up to the 2014 Games largely rebounding from the GFC but growth took a turn after playing host city and house prices increased a cumulative 27% up to 2019. Manchester, on the other hand, saw the strongest marginal change in growth when it hosted the Commonwealth Games in 2002. Prices had grown 63% in the 5-year lead up to the event but exploded to 140% in the five years after.
The future for Birmingham real estate investors is bright. In fact, JLL in their UK Residential Forecasts report, listed Birmingham as the city anticipated to see the highest price growth in the UK averaging 5% annual growth over the period of 2022 to 2026. Bolstered by the Commonwealth Games, the region will continue to see price growth due to increased connectivity resulting from the HS2 rail. The London to Birmingham leg will open in 2026, making the capital city commutable in under 45 minutes.
With extensive urban regeneration, stronger employment opportunities and better infrastructure, Birmingham is one of IP Global’s first choices when it comes to finding pockets of value. Take a look at our latest Birmingham property, The Silversmiths here.
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