LAST week I covered the reality around interest rates and where they are going, as highlighted by the market makers, rather than what the Central Bank was saying.
The impact of the headlines has many destabilising factors, most notably of course our ability to plan ahead, and to buy or sell a home. You’ll be familiar with fight or flight, or of course the other option, freeze.
With confusion and worry (better described as negative imagination), it’s not that difficult for society to develop a ‘wait and see’ attitude, which could inevitably dry up supply, or demand, which creates the self-fulfilling prophecy of, ‘the housing market will slow’. And it did.
And so, sellers think they won’t get what they need for their home, so they don’t bother trying to find out (i.e. putting it up for sale). Buyers become worried about house prices falling so they don’t make an offer. That rusty negative feedback loop develops pretty quickly.
The drivers of this are a lack of understanding of the key points of last week’s column and what causes rates to rise and fall. Hopefully last week covered that.
If I look at the live rates on my screen, the market makers are clear in that two-year swap rates are below five per cent (4.74 per cent to be accurate). To understand that this does not mean that the rate in two years will be 4.74 per cent. That is the average rate over the two-year period. While they might be wrong about the future, that’s the basis on which rates are currently being manufactured to be sold to the public, not what the current Bank of England (BoE) rate is.
So, if rates are not expected to drop until August (which is what they are saying), to achieve an average rate of 4.74 per cent, rates will have to drop sharper at some point. Either way, the market makers are saying ‘they are falling’. It is only when something stronger comes from the BoE, (normally with their press office briefing material), that journalists will respond, that sends a strong message out, and hey presto, you have a buyer’s market again.
Is it sensible to mess around trying to time that market? No.
Let’s also consider: You want to sell a house now and the market is quiet, but you do need to sell in order that you can do whatever is required on the other side. So, you lower the price to pull in the smaller pool of buyers. These buyers want a home, but know there are deals to be done, so they offer less. That house sells, and the register shows house prices are falling.
Is this accurate? No. It’s just the same as the headline of ‘asking prices are falling’. It’s a nice journalistic headline, but meaningless. Of course, they are because it’s a slow, tight market. However, the buyer who is selling will lose on the swing and gain on the roundabout, which is really all we are talking about here – the gap between the one you are selling and buying, which is likely to be equal.
However, the important part here is the advice on whether or not to fix your rate, and for how long. Personally, I cannot see how the UK economy can deal with rates this high, which is what is echoed by the market with two-year fixed rates at 4.68 per cent, variables at 4.59 per cent and some remortgages at around 4.59 per cent, all below the BoE base rate.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like the best rates, a guide to fixing you mortgage, or the latest copy of our mortgage interest rate guidance report, email my mortgage director Pat Greene on firstname.lastname@example.org or call 028 68632692