Five-year mortgage rates drop below 6%; UK lagging G7 rivals; European stocks at three-month high – business live | Business
UK five-year fixed mortgage rates finally drop below 6%
The average five-year fixed mortgage rate has dropped below 6% for the first time since the market turmoil created by the disastrous mini-budget two months ago.
Moneyfacts reports that the typical five-year fixed deal now costs 5.95% per year, the lowest in seven weeks.
That’s down 6.5% a month ago, but still higher than before the mini-budget, when average 5-year and 2-year rates were both around 4.75%.
Mortgage rates have been dropping since Jeremy Hunt tore up his predecessor Kwasi Kwarteng’s plans in mid-October. The Bank of England has also helped, by saying that market expectations of rate rises were too high.
Bank rates is expected to peak over 4.5% next summer, down from 6% expected when the pound slumped to a record low and UK government borrowing costs spiked.
Two-year fixed mortgages costs have also dropped; they now average 6.13%, down from 6.65% a month ago.
Rachel Springall, finance expert at Moneyfacts.co.uk, says this fall will be a relief to those looking to borrow:
“Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement. As the average five-year fixed mortgage rate falls below 6% for the first time in seven weeks, borrowers who paused their home ownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.
But… rates could fall further still, Springall adds:
Indeed, it’s been around two months since both the average two and five-year fixed mortgage rate breached 5% (30 September 2022), but today only a handful of lenders are offering sub-5% fixed deals.
Borrowers may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”
Key events
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National Grid issues power supply alert as wind generation drops
Some late energy news…
The UK’s electricity network operator issued a warning that its buffer of spare capacity will narrow this evening, flagging that the grid is struggling to match demand with enough supply.
While National Grid said it was confident that power margins would be sufficient, the measure was narrow enough to trigger the automatic alert for 7 p.m. to the market.
The warning was later canceled but it shows the impact a decline in wind generation will have as temperatures plunge this winter.
GB : Capacity Mechanism Notice Issued for 19:00 this evening. Unlikely to become true as NG ESO will use interconnector trading to increase imports this evening over the coming hours ^PH pic.twitter.com/AX8sOFmJxh
— EnAppSys (@enappsys) November 22, 2022
UK rail workers plan further strikes in December and January
British railway workers will carry out fresh 48-hour strikes in December and January, the RMT trade union have said.
The latest industrial action have been announced after talks with employers collapsed without reaching a resolution to a long dispute over pay that has already disrupted services for months.
NEW:
– RMT announces another *eight* days of rail strikes before and after Christmas:
– fresh strike action on December 13, 14, 16 & 17 as well as January 3, 4, 6 & 7
— Jim Pickard (@PickardJE) November 22, 2022
Another significant point from the Treasury committee hearing:
Andy King explains why debt interest costs have risen.
The rise in interest rates since March means that the cost of servicing that debt doubles in cash terms to over £100bn and jumps as a % of government revenue from under 5% pre-pandemic to 8.5% by 2027-28.#AutumnStatement pic.twitter.com/HC58xQEZCm
— Office for Budget Responsibility (@OBR_UK) November 22, 2022
Here’s a neat chart showing how the UK will lag behind other G20 countries, with the exception of heavily-sanctioned Russia, next year:
European stock markets have hit a three-month high this afternoon, as energy stocks continue to rally.
The Stoxx 600 index is up 0.8%, to levels not seen since August.
Nationwide cuts fixed-rate mortgages
Back on the drop in mortgage rates (see earlier) Nationwide Building Society announced rate cuts to some of the mortgages it is offering.
The cuts, of up to 0.3 percentage points, will be made tomorrow.
The Society said the new rates will include a two-tear tracker rate for people with a 15% deposit, reduced by 0.3 percentage points to 3.94%, with a 999 fee.
They also include a five-year fixed rate re-mortgage deal for people with a 40% deposit, reduced by 0.26 percentage points to 4.93%, with a 999 fee.
Henry Jordan, director of mortgages at Nationwide Building Society, said:
“Continued market stability and the downward trend in swap rates have meant we’ve been able to make further rate reductions on a large number of products across our mortgage range.”
David Miles explains the impact of higher global energy and food prices on our economic forecasts. They’re expected to push inflation up to 11% this year, but inflation would have peaked 2½ ppts higher without the Government’s energy price guarantee.#AutumnStatement pic.twitter.com/i73JuJRvRA
— Office for Budget Responsibility (@OBR_UK) November 22, 2022
The rise in economic inactivity, with more people leaving the labour force, has also left the UK economy in a weak position, OBR chief Richard Hughes points out.
The causes of this are complex, he says, but include a combination of early retirement, and rising ill-health following the pandemic.
OBR: Borrowing rates and energy costs making UK poorer
Q: How does the UK escape its ‘doom loop’ of weak growth?
The OBR are reluctant to provide policy advice to ministers.
Professor David Miles says that several shocks have hit the UK since March, including a much higher increase in interest rates than forecast, and the surge in energy costs.
Miles says UK borrowing costs (measured by bond yields) surged ahead of other advanced Western countries after the mini-budget. They’ve now dropped back in line, but are still much higher than expected in March.
And market expectations for gas prices in the global market for 2023 are around 80% higher than forecast in March.
Those are the two reasons why the UK has got ‘a lot poorer’, as Paul Johnson of the IFS warned last week.
OBR has told the Treasury select committee the Treasury told them they were fine to factor in the 23% fuel duty increase in April into their forecast
This is at odds with what ministers have been saying, who said it was the OBR assuming the increase would go ahead – not them…
— Nadine Batchelor-Hunt (@nadinebh_) November 22, 2022
OBR: “Our forecast is based on govt policy which was announced back in March… it was a policy as confirmed by the Treasury when they gave us the policy assumptions to use when we produced [the report] this month…”
— Nadine Batchelor-Hunt (@nadinebh_) November 22, 2022
OBR: Not raising fuel duty would cost £6bn
The Treasury committee turns to the OBR’s assumption that fuel duty won’t be frozen next March, and will rise by 23%.
OBR chief Richard Hughes says the watchdog’s work is based on government policy. Back in March, then-chancellor Rishi Sunak announced a 5p per litre cut to duty, which would be reversed after a year.
That remained part of the ‘policy assumptions’ which the Treasury gave the OBR to use for this month’s forecasts.
Lifting fuel duty as planned would add 12p per litre to petrol and diesel.
If the government doesn’t go ahead, it would cost £6bn, he explains.
That being said, no chancellor since 2010 has actually gone ahead with the planned indexation of fuel duty, Hughes grins – but many leave the decision until late in the day, becauase it flatters the forecasts.
Q: Did you tell Liz Truss and Kwasi Kwarteng how dangerous it would be not to commission a forecast from the OBR?
OBR chief Richard Hughes says there were no discussions with the chancellor or PM prior to the 23rd September (the day of the mini-budget).
Q: Do we need a better definition of a fiscal event?
Hughes agrees there have been five fiscal events since March (including last week’s autumn statement, which did come with an OBR forecast).
Good practice, as defined by anyone… would say you shouldn’t make fiscal decisions without an updated economic outlook.
OBR chief Richard Hughes tells MPs that business investment has been ‘pretty disappointing’ for a while in the UK.
With a consumption-driven recession facing us, it’s hard to see many firms lifting investment – especially as rising interest rates make borrowing more expensive.
OBR committee member David Miles weighs in, saying people are likely to dip into their savings as household incomes are hit by the recession (rather than hunkering down and saving more).
