Average five-year mortgage rate hits 6%
The average five-year fixed-rate mortgage on the market has breached 6% for the first time in 12 years, as the crisis in the lending market deepens.
Across all deposit sizes, two-year and five-year fixed rates now both stand at more than 6% on average, according to Moneyfacts.co.uk.
The average five-year fixed-rate mortgage rose to 6.02% this morning, Moneyfacts said, having crept up from 5.97% on Wednesday.
The last time average five-year fixed-rate mortgages were at 6% was in February 2010, when the typical rate was 6.00%.
The average two-year fixed-rate mortgage is now 6.11%, having breached the 6% mark on Wednesday, for the first time since November 2008.
NEW: The average five-year fixed-rate mortgage on the market has breached 6% for the first time in 12 years.
Across all deposit sizes, two-year and five-year fixed rates now both stand at more than 6% on average, according to https://t.co/1FhM7QLp2g.
— Vicky Shaw (@ThisIsVickyShaw) October 6, 2022
Surging mortgage rate will force more lenders into arrears, economists fear, and also push down house prices.
The Centre for Economics and Business Research warned this morning:
With average mortgage rates set to reach more than 20-year highs by mid-2023, and stagflationary pressures set to reduce real earnings further, affordability will worsen next year.
Accordingly, annual house price growth is expected to enter negative territory during the first half of 2023, with an overall annual contraction of 3.9% expected across the whole year.
Between April and June this year, 80,150 borrowers were in significant arrears. This number will surge to 175,000 by the end of 2024 – close to the 216,400 recorded in 2009 @andrewishart https://t.co/wUknqRCNKw
— Emma Fildes (@emmafildes) October 6, 2022
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Another name to add to Truss’ anti-growth coalition, Deutsche Bank estimate the UK economy will only return to trend growth of 1.25% by the middle of the decade as a result of high interest rates, rising unemployment and a weak global economy
— Mehreen Khan (@MehreenKhn) October 6, 2022
Deutsche Bank: UK economic outlook has weakened further
Deutsche Bank has cut its economic forecasts for the UK next year.
It now sees the UK “in a recessionary orbit” with growth likely to remain subdued for much of the next year or so.
It predicts that UK GDP will fall by 0.5% in 2023 (down from a previous forecast of 0%), before growing by 1% in 2024, when the economy would finally return to its pre-pandemic level.
Anti-Growth Coalition latest: Deutsche Bank forecasts UK economy won’t recover to pre-Covid levels until *2024*
— Richard Partington (@RJPartington) October 6, 2022
On the upside, GDP is expected to have risen by 4.5% this year, up from 3.5% forecast before.
Deutsche’s chief UK economist, Sanjay Raja, gives three reasons fot the changes.
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Easier fiscal policy should support real disposable incomes by a little more than we anticipated this year and next – despite price pressures expected to be a little more persistent over the next two years.
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Tighter financial conditions, however, will offset much of gains in fiscal policy. Household spending and business investment are likely to track a little lower than we previously anticipated, especially with unemployment expected to rise from next year.
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A weaker global backdrop will weigh on UK trade. Our Euroarea colleagues anticipate a deeper winter downturn (relative to our previous projections). This should hurt UK exports over the coming quarters.
US recession ‘now over 50% chance’
A US recession is now “more likely than not”, Capital Economics say.
They told clients:
In light of the Fed’s increasingly aggressive monetary tightening, we now think the economy is headed for a mild recession early next year.
Our composite tracking models support that forecast, with the implied odds of the economy being in recession in six months’ time now above 50%.
UK households could face three-hour power cuts this winter, National Grid warns
Alex Lawson
Britain could face planned power cuts to homes and businesses this winter if it is unable to import electricity from Europe and it struggles to attract enough gas imports to fuel its gas-fired power plants, Britain’s National Grid has warned.
The warning comes in its Winter Outlook, just released.
It warns that households could experience a series of three-hour power cuts this winter if Vladimir Putin shuts off gas supplies from Russia and Britain experiences a cold snap.
Such an event would mean consumers in different parts of the country being notified a day in advance of three-hour blocks of time during which their power would be cut off, in an effort to reduce total consumption by 5%.
The emergency plan need would need to be approved by King Charles on the recommendation of the business secretary.
National Grid said that in the “unlikely event” of a shortage of gas supplies that some consumers would be without power for “pre-defined periods” during a day to “ensure the overall security and integrity of the electricity system across Great Britain”.
Here’s the full story, by our energy correspondent Alex Lawson:
The UK’s biggest mortgage lenders were planning to urge the chancellor to extend a government home loans initiative which helps first-time buyers get onto the property ladder, Sky News reports.
Executives from major banks and Nationwide, Britain’s biggest building society, were expected to ask Kwasi Kwarteng to commit to renewing the Mortgage Guarantee Scheme, at today’s meeting.
The scheme is scheduled to expire at the end of the year.
Launched in the spring of 2021, it gives lenders an option to underwrite through the government the losses incurred on mortgages above 80% of the purchase price of a property.
Britain’s biggest mortgage lenders will urge Kwasi Kwarteng to extend a program which helps first-time buyers purchase a property at a meeting Thursday, Sky News reports https://t.co/iCxJjCrOvo
— Bloomberg Economics (@economics) October 6, 2022
Back in the UK, buy-to-let landlords are struggling to get a new mortgage deal following the mayhem in the markets.
The Daily Telegraph reports:
Two-year fixed-rate mortgages have disappeared from the market in the last few weeks. At close of business on Wednesday just two of these mortgages for buy-to-let landlords purchasing in through a company were available, according to Mortgages for Business, a buy-to-let broker.
A further 67 two-year fixed-rate deals remain available for landlords purchasing as individuals. Experts said the number of fixed-rate deals on the market was down by 70pc.
More here: Mortgage crisis spreads as buy-to-let loans disappear
A reminder that the 50% jump in mortgages doesn’t only affect people with mortgages. Buy-to-Let landlords are going to pass their mortgage increases right on to their tenants. https://t.co/2k08VlB2a3
— Gary Williams (@GaryTomWilliams) October 6, 2022
LAYOFF WATCH: U.S. jobless claims jump 29,000 to 219,000 in week ending Oct. 1. Highest level since late August. Possible sign of rising layoffs, but raw or actual claims still near historic low. New claims are one of the best leading indicators of the economy.
— MarketWatch Economy (@MKTWeconomics) October 6, 2022
US jobless claims rise
Just in: More Americans signed on for jobless support last week, in what might be a sign that the labour market cooled.
There were 219,000 new ‘initial claims’ for unemployment benefit in the week to 1st October, a rise of increase of 29,000 from the previous week’s revised level, and more than forecast.
*US WEEKLY JOBLESS CLAIMS AT 219,000 LAST WEEK; EST. 204,000
— IGSquawk (@IGSquawk) October 6, 2022
This weekly jobless data can be noisy, but it could indicate that higher interest rates are having an impact:
#Unemployment claims surged higher by 29K to 219K. That’s the kind of news that will make the Fed happy as it hopes high rates slow the economy enough to bring down inflation. Market pares futures losses, #DOW -80
— Jason Brooks (@brookskcbsradio) October 6, 2022
Wall Street is set for a lower open too, as traders ponder whether the US Federal Reserve might ease up on its interest rate rises, or keep pressing on…
Stocks are lower in London today too, with the blue-chip FTSE 100 down 54 points, to 6998.
Another bad day for the gilt market – yields up 15-17 bps across the piste, and by much more than comparable countries today.
Still an area of worry in the UK financial landscape pic.twitter.com/h4jGEwhD62
— Andy Bruce (@BruceReuters) October 6, 2022
The pound has slipped further during today’s session, and is now down eight-tenths of a cent at $1.1244.
Craig Erlam, analyst at OANDA, says:
The UK economy appeared to get some good news from the Construction PMI this morning, which easily beat expectations rising to 52.3 rather than dropping to 48.1 from 49.2. So rather than contracting at a faster rate, the industry posted strong growth in the survey. Unfortunately, the headline number simply doesn’t tell the full story. The improvement was driven by delayed projects and easing supply shortages, while new orders showed the weakest growth since May 2020. That’s a more accurate reflection of the state of play in the UK right now…
…As was captured overnight by Fitch downgrading the outlook from stable to negative in light of the mini-budget.
The overall rating remained at AA- but that may change once the details of how everything will be paid for are released in the budget. Sterling is down for a second day after recovering over the last week.
The jump in UK fixed-term mortgage rates to above 6% creates a conundrum for those with home loans, and those looking to take one out. Is it better to borrow now, or wait?
Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uk, says:
“When it comes to remortgaging, we’d recommend fixing for longer – especially if your current deal has less than six months remaining – to protect yourself from further price rises in the future.
However, for those looking to buy, it might be worth waiting to see how the situation develops in the coming weeks and considering your options, especially in light of the recent news that major banks are set to meet the Chancellor to discuss the mortgage market and soaring rates.
Rail travellers have been warned that only a fifth of normal train services will run on Saturday due to industrial action.
Network Rail reports that around half of the network will be closed all day and trains will only operate between 7.30am and 6.30pm.
Passengers are being urged to “only travel by train if absolutely necessary”.
More than 40,000 members of the Rail, Maritime and Transport (RMT) union at Network Rail and 15 train operating companies will walk out on Saturday in a row over jobs, pay and conditions.
Meanwhile in Germany, a drop in factory orders shown Europe’s economy is close to recession.
German factory orders dropped by 2.4% in August, government figures show, after a 1.9% gain in July.
The Federal Statistics Office said in a statement that:
Enterprises still have difficulties completing their orders as supply chains are interrupted because of the war in Ukraine and distortions persist that have been caused by the Covid-19 crisis.
Here’s some reaction to the Bank of England’s explanation of how it saved the UK’s pension industry last week (see earlier post for full details).
New Bank of England letter to Treasury committee makes sobering reading.
On 27 Sept, some pension funds were telling the Bank that they could go bust *the next morning*.
Bank staff worked through the night and announced emergency intervention on 28th. pic.twitter.com/sCMUFnzCt8
— Georgina Lee (@lee_georgina) October 6, 2022
Bank of England writes to Conservative MP to clarify with a nice graph who’s to blame for the rise in gilts (you guys, not the Fed), and who can bring them down (us guys). pic.twitter.com/YVdxg9OAfx
— Daniela Gabor (@DanielaGabor) October 6, 2022
The Bank of England has written to @MelJStride of Treasury select committee with more details about its emergency bond buying.
Includes this chart, not great for the “it’s a global issue” line: pic.twitter.com/Xj04rdFdKp— Heather Stewart (@GuardianHeather) October 6, 2022
The jump in mortgage rates mean borrowers face paying thousands of pounds more per year than if they’d fixed at the end of last year.
Back in December 2021, the average two-year fixed mortgage on the market had a rate of 2.34%. Someone with a £200,000 mortgage taking out a two-year deal at that time could have had monthly repayments of around £880.
But on current average rates, their monthly mortgage repayments could be over £1,300 – a difference of around £420 per month, or more than £5,000 per year.
The picture is similar for five-year fixed-rate mortgages. The average rate last December was 2.64%, meaning monthly payments of £910 for someone with a £200,000 mortgage
But now, someone could pay £1,290 per month if they took out a five-year deal now – a jump of just under £380 per month, or more than £4,500 per year.
The CEBR also predict today that mortgage rates will keep climbing in the months ahead, to over 7% by next spring.
In its latest Housing Prospects report, it predicts the Bank of England will raise interest rate by 75 basis points in both November and December, raising Bank Rate to 3.75%.
Further rises could lift it to a peak of 5.0% by the middle of 2023, up from 2.25% today (and just 0.25% at the start of the year).
The CEBR says:
Accordingly, newly fixed 75% LTV mortgage rates at a two- and five-year fix are expected to reach respective peaks of 7.4% and 7.7% across Q2 next year, their highest levels in at least 20 years.
By significantly reducing mortgage affordability and demand among those seeking to borrow or remortgage, this is set to weigh on price growth across the coming two years.
