5% mortgage rates (again)

[Twiglets1]

Following on from the previous two of these threads both with 6% mortgage rates in the title, I think it's more realistic to return to 5% for this one.

According to this Rightmove article, the current average mortgage rate for a five-year fixed rate mortgage is 4.84%, up from 4.85% last week. The current average rate for a two-year fixed rate mortgage is 5.23%, which is unchanged from last week. The lowest available five-year fixed rate is 4.13%, and the lowest available two-year fixed rate is 4.46% – both unchanged from last week.

On 27th March, the average 5 year fixed rate mortgage for someone with a 60% LTV was 4.35%.
For someone with a 75% LTV it was 4.72% whereas 80% was 4.79%.

For someone with a 90% LTV it was 4.98% whereas 95% was 5.47%.

Two year fixed rate mortgages are slightly higher.

https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/

>>Haven’t watched him recently to say whether he’s still interesting or just repeating the same message in different ways which would get boring.

I stopped watching him five or six months ago because that’s exactly what he is doing.

Also, I bought his book when it was released. You don’t really learn anything in there that he hasn’t covered in his many videos.

Six weeks later an article appeared in my feed by someone like the FT or Telegraph whereby a whole host of his former colleagues or people working in his industry at the time completely debunked his claims about his level of success and earnings. They basically said ‘I didn’t see the numbers or work with him but there’s no way that is possible.’

I lost interest when it started getting repetitive and I read that.

However, he does make some very interesting points about the rich versus poor divide and there basically only ever being a middle class for a 40 year blip in history that make a lot of sense.

Japan had its crash and deflation since the 1990s, Its debt is currently at 217% debt to GDP. All good whilst the going is good in the 40 year disinflation cycle. Not good in an inflation one, hence the Japanese carry trade hasn’t gone away.

China still has that deflation period to come, although it’s going to attempt to ‘grow’ its way through the deflation. It’s currently taking the steps to restructure its debt to local governments and finance infrastructure to reduce tax on its citizens to stimulate growth. Remember its already had its stock market and real estate crash. Key difference to the west is that its people save 20% of its GDP. Thats a lot of capital (by restricting foreign treasury purchases) to buy its own treasuries to reduce yields. It’s essentially increasing its own consumption (in which it was exporting it previously)

We are the opposite in the west. We are desperately trying to avoid a correction in the real estate and stock markets, and we consume far more than we manufacture and produce.

Trump is making murmurs about trying to merge Canada and Greenland into the US and that’s no coincidence. He’s trying to set the US up to follow China and become resource independent once the proverbial hits the fan in the west (which is a certainty)

We won’t fare so well in the UK/EU unfortunately. But yes on QE I fully agree. They’ll be more QE to devalue all currencies to try and exit a recession going forward that much is certain. But UK borrowing at high yields (like they are currently doing) and chucking it into black holes is not an economically sound strategy. Mr Market sees through that hence our yields spiking.

The gap has decreased because we have exported our manufacturing and have imported our labour and consumption over decades which has Blair ratcheted up in 2000 (I didn’t even look at your graph but know this date will line up with your field of reference)

That is part of the disinflation cycle which has now changed into an inflationary one. (When things get more expensive, countries start onshoring and using their own resources to save logistic/tariffs costs etc)

What we are seeing now is the middle class are essentially being taxed and squeezed to pay for the non-productive to try and continue as we were in a disinflation cycle that no longer exits. So of course the gap narrows.

We are essentially trying to now fill the gap through increased taxation since entering into an inflationary cycle (since 2020) which isn’t viable longer term as the treasury markets are currently telling us.

For example, it becomes worth more for person to be on universal credit with a couple of kids with rent covered, than working full time for a basic wage and trying to achieve the same, hence the UK imports labour to do the job instead.

Currently nearly 60% of the UK are dependent on some kind of government benefit which highlights that funding has to come from somewhere and that somewhere is the middle class PAYE tax payer. The ‘rich’ simply move their tax bases elsewhere and offsets more costs to avoid paying more tax.

All higher taxes does is damage growth potential of the the country and its tax base votes with its feet and migrates (hence the term brain drain) so you end up with less tax receipts (like the UK did in the 70’s).

So when we have our inevitable ‘Argentina’ moment of high inflation and vote in a ‘Milei’ that takes an axe to benefits and public sector spending (non productive consumption basically) then your graph will revert to its previous trajectory.

As I was referencing to above

https://www.reuters.com/world/americas/mileis-austerity-seen-pushing-half-argentina-into-poverty-2024-09-26/

Sometimes when push comes to shove and the alternative is complete collapse which benefits no one, difficult decisions have to be made.

I thought it was related to income, which seems to be what you are saying in your second paragraph.
I agree that most people have been getting poorer in real terms in the last 20 years. However, the top 1%+ have clearly been getting much wealthier in terms of their assets. Saying that the middle are getting poorer and nearer to those on NMW isn't a positive thing and this doesn't take account of those at the very top who are simply taking a larger slice or a reducing pie. It also isn't correct to say that inequality is reducing based on this for the reasons given.

Agreed.
I mentioned Japan because they had such a spectacular and long lived crash back in 1990ish. I'm pretty sure, although haven't looked it up recently, that their stock and house prices have taken 30+ years to recover to 1990 values and that's on a better base than the UK.
The Chinese deflation and asset price fall may just be the start. Their strategy, while it seems better thought out than the West's responses, may not work. They let property prices get far too high.Time will tell.

Trump is definitely going for more protectionist policies which make sense. If he can curtail rather than start or escalate wars, that could certainly be a good thing. He's talking about cutting waste but is also a huge lover of stocks at all time highs so that might be a struggle for him and I think I know what will win!

I'm sure that we will have an asset price fall in the UK/ US, etc. I think the central banks are working hard behind the scenes. At some stage, things will go very wrong in a way that they can't stop.

Thank you for explaining that. Very informative and how I understand things to be also.

https://news.sky.com/story/amp/starmer-says-treasury-will-be-ruthless-in-cutting-spending-amid-market-turmoil-13288174

I’m not usually one for tin foil hatting but I think Musk is deliberately destabilising the UK economy.

Think he should butt out of UK politics tbh.

He has no choice but to say this. Let's see what happens and what he chooses to cut.

He definitely likes to control things and have his fingers in all the pies, that's for sure.

Tory austerity bad, Labour austerity good no doubt.

I think it will be Tory bad, Labour very, very bad!
This was always going to happen and Labour were never going to win a second term. The question is what the UK will get next!

Bond markets don’t react to Twitter posts. Treasury yields couldn’t care less about what Elon Musk thinks or stays.

Treasury markets do dictate monetary policy however and what the central banks do. That’s why the repeated rate cuts media bluster that posters kept repeating on here was just speculation from a macro perspective that showed direction was the opposite.

What BoE says in the media is constantly proved to be inaccurate because (like politicians) they have to maintain the saleability of our country or else treasury markets destabilise and make matters worse.

It’s quite simple. At 100%+ debt to GDP (and 25% of our debt linked to inflation) it doesn’t believe that the UK will achieve growth (which it won’t). It believes inflation will ratchet higher, and with our debt obligations we’re not producing enough to offset our spending.

Yields will continue to rise until the market finds value, which doesn’t look like it will at current levels so as the US yields that lead the way are still rising also. Cutting rates into rising yields = more inflation.

Rates need to rise once again but catch 22 because the government can’t afford it.

@Lightscribe the BOE and other central banks are stuck between a rock and a hard place. This could have been avoided if they had let things play out in the GFC without charging in with monetary interventions. As you say, the chance of genuine growth in the UK now is nearly nil. Further QE down the line, which I anticipate, would be very likely to cause even higher inflation and other repercussions. .

The UK only gets away with QE if the rest of the world is doing it. Last time we did it everyone was doing it and basically all the major currencies devalued together. If we tried to do it on our own we would be stuffed and the BOE knows that. The only time we will do QE again is if there is another global crash and big economies do the same thing.

BOE is a bit player now as determining the UK economic conditions. That's what happens when you do stuff like outsourcing mortgage lending to the international money markets. We've basically lost our ability to affect change in the domestic marketplace with monetary policy and we have to go where the international tides take us.

Somewhat ironically the British electorate don't seem to be able to keep the British government honest now, that role has been outsourced to the money markets. But of course they only care that we balance the books. But not whether we balance them in a moral way.

True @GasPanic but this is what I anticipate. I think it's inevitable at some point. 'The only time we will do QE again is if there is another global crash and big economies do the same thing'

I agree with you here: 'Somewhat ironically the British electorate don't seem to be able to keep the British government honest now, that role has been outsourced to the money markets'
The British electorate just seem to want more and more handouts without putting work in themselves (obviously some do, but generally speaking). Of course, they talk about cuts, but not cuts to their own lifestyle. No, the cuts are always to be born by someone else.

The big question to me is why they bother keeping the MPC. It's just a jolly out in London for a few profs and costing us money. Each member costs £160K per year I believe.

Just stick the rate at some fraction of the US and ECB rates combined and be done with it, and maintain the possibility of special intervention.

And give me the half the cash instead. There is a cost saving idea straight away.

Surprise fall in UK inflation to 2.5% eases pressure on Rachel Reeves

UK inflation unexpectedly fell in December, handing some breathing space to the chancellor, Rachel Reeves, after a week of turbulence in financial markets.

With the government under pressure on the economy, figures from the Office for National Statistics showed the consumer prices index eased to 2.5%, below a reading of 2.6% in November, meaning prices rose at a slower rate.

City economists had forecast inflation would remain unchanged on the previous month.

In a crunch economic update just as the government battles to reassure jittery bond market investors, the latest snapshot could open the door for the Bank of England to cut interest rates from as early as next month.

https://www.theguardian.com/business/2025/jan/15/surprise-fall-in-uk-inflation-to-25-eases-pressure-on-rachel-reeves

Inflation unexpectedly falls to ease pressure on Reeves

The pound fell as the drop cleared the way for the Bank of England to announce a cut in interest rates next month.

Sterling was down 0.2% against the dollar to $1.218 as traders increased bets that policymakers will reduce borrowing costs at the next Monetary Policy Committee meeting in February.

Money markets indicate there is a nearly 70% chance that the Bank will cut interest rates from 4.75% to 4.5% in February, up from a 64% chance on Tuesday.

https://www.telegraph.co.uk/business/2025/01/15/ftse-100-markets-latest-news-uk-inflation-us-bonds-reeves/

German economy shrinks for second straight row:

apnews.com/article/germany-economy-gdp-2024-election-edb9e2d9b4ab5b13c377354b5bfdc904

Lol "inflation unexpectedly falls".

It's basically stayed the same. A 0.1% drop is just noise. Especially if you factor in the BOEs woeful record on inflation forecasting.

The BOE may or may not cut rates. But at the end of the day it will make little difference to mortgage rates.

It also makes me laugh how the BOE seems to be incredibly reluctant to hike rates even in the face of significant rising inflation, but cuts them at the barest whiff of inflation falling.

All has the whiff of desperation about it to me. Germany in recession is obviously not good for anyone.

‘Eases pressure’.
Prices now going up by 2.5% rather than 2.6%, as recorded over 1 month.
As per @GasPanic it’s just static.
No one gets excited about a 0.1% of anything, except for these figures.

I’m not sure anyone is getting excited about this @HellsBalls The media are just reporting it like they would if inflation had risen & they always try to make their news stories sound interesting.

But it is relevant to this discussion if a small fall in inflation makes it more likely that the BoE will reduce the base rate from 4.75% to 4.5% next month.

A lower base rate in February won’t make much immediate difference to mortgage rates as @GasPanic notes. But over the longer term, if we see the base rate falling some more throughout 2025 & 26, eventually that is going to have an impact on mortgage rates.