Finanze® Daily Digest - 12/09/2022

The Brief: The UK housing market is already showing signs of a slowdown and so are other top cities, according to Bloomberg today. The report identifies major markets such as Auckland, Sydney, Stockholm, Toronto and London feeling the pinch of the housing price declines mainly resulting from the interest rate hikes imposed by their central banks. It also warns that 1.8 million UK mortgage holders are set to refinance their loans in 2023, prompting serious financial concerns as the cost of living continues to spiral, and real wages declining by 3% in the previous quarter.

Why It Matters: The Financial Conduct Authority (FCA) reports that residential mortgage loans in the country rose by 4.4% year over year to £1,630.5 billion at the end of Q2 2022. This is expected to rise further when the FCA releases its newest report tomorrow. The Bank of England (BOE), on the other hand, claims that a third of the total mortgage holders in the country will have their fixed-rate contracts expire soon and brace for higher repayments. However, 50.4% of these are on contracts longer than 24 months, which means that they are shielded from the impact of higher rates at least for now.

Finanze® Foresights: The housing market is already battered by supply chain issues that have fueled the increase in construction prices while build-cost inflation continues to squeeze developers’ margins. Adding to the distress is the fourth consecutive month drop in new buyer inquiries, according to The Royal Institution of Chartered Surveyors’ (RICS) survey released last week. With global property downturns growing, UK real estate builders have yet to see a rise in consumer confidence equal to pre-pandemic levels given the painful cost of living that is hammering households’ finances, as well as the withdrawal of the Help to Buy equity loan program by the government. They will have to contend with higher borrowing costs in the next two years as surging inflation will drive BOE to further raise interest rates before the year ends.

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