Financial Market Update
Colin Payne : 20 June 2011
The Monetary Policy Committee (MPC) has, as expected, kept interest rates at 0.5% for the 27th month in a row, citing that the inflationary factors in the market cannot be influenced and are of a temporary nature. With inflation expected to increase to over 5% in the short term the Bank will no doubt come under increasing pressure to increase interest rates during the remainder of the year, with opinion still split on when rates will increase.
Despite the apparent allure of supermarket bargains, a typical basket of fresh produce – including bread, meat and vegetables – now costs 4.9% more than it did in 2010. And it is rising at its fastest rate in almost two years. Scottish Power also signalled this week what is expected to the first in a fresh wave of domestic-energy price rises as it announced that its average gas tariff would increase by 19% from august, with electricity also up 10%.
The rate futures market is not pricing in an increase until March/April 2012 – the British Chamber of Commerce expects interest rates to start rising from August and to be at 2.75% by the end of 2012. On the other hand, the Ernst & Young Item Club still take the view that the bank rate could remain at the current 0.5% level, certainly until the end of 2011 and possibly throughout 2012 due to the overall weakness of the UK economy.
This all has led to fixed rate mortgages comind down, and competitive pricing across the entire market.
For current advice and recommendations on the best mortgage deals, contact us on 020 7317 7311
Colin Payne, Chapelgate Associates Ltd
Financial Market Update
Colin Payne : 23 February 2011
Since the last update, the Monetary Policy Committee (MPC) has continued their ‘wait and see’ policy and kept rates at 0.50%. However, since then inflation has continued to increase, with the consumer price index increasing from 3.7% to 4%. The problems in North Africa and the Middle East have certainly not improved the situation, and with Libya being a major oil exporter to Europe the cost of a barrel of oil has continued to increase. The price of a barrel of crude oil is now almost $105, its highest level since before the financial crisis really took effect in 2008, and an increase of approx 40% in the last 12 months. Retail sales bounced back in January with a 1.9% increase, but that contrasted with a December when sales nose-dived 1.4% due to the poor weather. In order to see the full picture we need to wait for the February figures to be announced in mid-March. However, the talk is all about inflation, and given the fact it is likely to continue to increase in the short term I still believe an increase is inevitable in May.
Despite all this, SWAP rates are down slightly on where they were last week, but this is because the market has already priced in a bank rate increase. This has been reflected with lenders increasing their fixed rate prices, with Nationwide doing so twice in the last 5 days. The lender that has bucked the trend is Halifax who, in reducing rates, now has the market-leading two-year fix at 75% borrowing.
It is a close call whether a tracker or a fixed rate mortgage is the more beneficial. There is still almost 1% between the cheapest two-year tracker and the cheapest two-year fix, and I don’t envisage the bank rate increasing by that amount over the next 12 months. The client will potentially be better off for the first 12 months, and then if interest rates don’t rise too sharply could still save over the the two years as a whole. Trackers are not the only option, and it is important to remember that whilst 1% is a large difference in rates, if you want to be able to budget, a fixed rate has to be a consideration.
For advice on the best option given your circumstances and in these market conditions, contact us on 020 7722 6777.
Colin Payne, Chapelgate Associates Ltd
Financial Market Update
Colin Payne : 07 February 2011
The main topic this week is the interest rate decision due from the Monetary Policy Committee (MPC) on Thursday, with many economists not ruling out an increase in rates. An influential panel of economists dubbed the ‘shadow’ MPC has increased pressure on the MPC by suggesting bank rates should increase from 0.50% to 1%. However, the Governor of the Bank of England, Mervyn King, has made it known that he does not foresee interest rates increasing until the UK economy shows more consistent signs of recovery. That said, two members of the committee voted for an increase last month (albeit before they were aware of the GDP figures), and it will only take three more members to sway in their direction. It is becoming increasingly more difficult to predict when we are likely to see an increase, with manufacturing figures pointing to a recovery in January but consumer confidence slumping in the same month.
In my view there is every chance that there could be an increase by May, when the MPC will have Q1 GDP figures and quarterly inflation report. If the former has recovered and the latter indicates that inflation will continue to increase, I think an increase is certainly on the cards. The silver lining at present is that oil prices have fallen back approximately 3% from their peak last week, but this fall needs to continue for it to have any impact on factory gate prices, not forgetting of course the price of petrol on the forecourts.
The money markets are certainly pricing in an increase in interest rates, with a large increase of around 0.30% in SWAP rates over the course of the last 7 days. Two and three year SWAP rates are at their highest for a couple of years, with five year SWAPs at their highest for 12 months. Most lenders are starting to increase their fixed rates with the exception of one or two, notably The Mortgage Works (an intermediary only lender and subsidiary of Nationwide Building Society) whom have indeed reduced rates.
For current advice and recommendations on the best mortgage deals, contact Chapelgate now (020 7722 6777) to ensure that you get the best value mortgage deal for your personal requirements.
Colin Payne
CHAPELGATE
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