First published by Financial Reporter
Global events create uncertainty close to home
With three months almost behind us, it seems a fairly obvious statement to make but any thoughts of ‘market normality’ returning during 2022 – whatever that might mean – seem somewhat wishful thinking.
Of course, few would have foreseen what might be about to unfold in Ukraine back at the tail end of last year, and as a consequence, it really is impossible to understand where this might take our market, let alone the world.
The UK housing market has always felt somewhat insular; moving to its own specific tune and relatively unaffected by bigger ‘world’ events. That viewpoint was undoubtedly shifted by the Credit Crunch, but it still does often seem to swim in its own waters for a lot of the time.
However, even if indirectly, there are still going to be major ongoing consequences as a result of the Russian invasion of Ukraine, the sanctions against the former, and where this might take the world economy particularly in terms of gas and oil.
What consequences could this have on the market?
To that end, we feel there are a number of ongoing areas which we need to keep an eye on, with an impact likely to be felt for borrowers/would-be purchasers specifically and of course our own businesses.
First up, is of course inflation. Even before the year began, predictions for what inflation might reach were worrying; now however those predictions seem to be overly optimistic.
I read a recent report from Capital Economics suggesting inflation would peak in April/May this year at 8.5%, the time when energy bills are going to rise significantly. Let’s hope that’s the peak but a lot can happen between then and now, and during the rest of the year.
We should not forget that the Bank of England’s target for inflation is 2% so you might guess what will happen as a result of it running over four times that level. Increases to Bank Base Rate (BBR) seem assured – the only thing that might put the MPC off is the situation in Ukraine and whether it feels it wants to add to people’s mental burden with a financial one. It may feel like it doesn’t have a choice.
It’s therefore anticipated that BBR will rise a couple of times in the first half of this year by 25 basis points, with another 0.25% increase early in the second half of the year. That would take us to 1.25% with the potential that we’re back at 2% sometime during 2023.
A further yoke to bear to the cost of living
For individuals, inflation at the levels suggested is going to be difficult to stomach. Purely on energy bills alone, we’re looking at a doubling of monthly/yearly payments; plus the wider basket of goods is also going up. If you’re on a variable mortgage or BBR tracker then mortgage payments are also going to go up.
What this might mean for consumer confidence is likely to be a big factor in terms of housing market activity. As we’ve seen, the pandemic actually boosted demand and activity levels as people looked to move as a result of work/lifestyle reasons.
Whether this confidence remains in place will play itself out over the months ahead. At the moment, activity levels remain strong essentially because demand far outweighs supply by such a hefty amount. Going forward, one of the major questions will be whether individuals are able to get the mortgages they need?
In the mortgage/housing market, rising inflation is going to be fed through into affordability and we’ve already seen some lenders shifting their affordability measures in order to take account of those rising bills/outgoings.
The positive here is that lenders still need to lend. Competition is very high and many banks are sitting on large reserves that they need to get out of the door. That won’t change throughout the year.
Turbulent times make for an unpredictable market forecast
Whether individuals feel now is the right time to purchase/move, in such a turbulent period, is another unknown. We’ve seen the Major Purchase Index dip slightly with people putting off making some major purchases, and from this we might surmise that they could feel the same way about buying a new home.
However, as mentioned earlier, ours is a market which often reacts differently to others. We’ve seen very good transaction numbers already this year and the pipeline remains very strong – it would not surprise me to see this continuing, especially as we move into the Spring, traditionally a very busy time for the market.
Overall, it’s very difficult to come to many strong conclusions. There are so many variables at play, and we have few recent historical comparisons (if any) to draw upon. How many of us have worked in a (hopefully) post-pandemic period, in which war was being waged in Europe? No-one.
As always, it’s important to be flexible, to make the most of the work currently available, and the opportunities that present themselves. Control the controllables, hope for better news elsewhere, and cross fingers that the madness will end as soon as possible.
Simon Jackson is CEO of MSS