News

According to recent findings, the number of re mortgagors who anticipate rate rises has increased significantly in the last six months, from 16% in February to 28% in August; and 6% up from July’s 22%.
The assumption interest rates will rise is driving re mortgage activity among borrowers keen to take advantage of record-low rates before a hike, with lending up 20% year-on-year in August to £4.2bn.
In addition, almost two in three people re mortgaging in August did so to take advantage of lower mortgage rates. Nearly two in five (37%) of borrowers took advantage of low mortgage rates to reduce their monthly payments by up to £500, with 4% reducing monthly payments by more than £500.
Just 3% of re mortgagors were incentivised to stay by their lenders, while 76% opted to switch.
Re mortgagors also withdrew record amounts of cash from their homes in August with almost a third (30%) seeking to increase the size of their loan. More than a fifth increased the size of their loan by more than £20,000.
Of those increasing the size of their loan, more than one in four (28%) chose to re mortgage to spend on home improvements, while six in 10 (60%) opted to pay off debts. A small percentage also used the additional cash to help a child buy a property. There are two important messages here. Re mortgaging has increased bank lending, not an increase in house sales, indeed anything above £250,000 is in a troubled spot. First time buyers and buy to let investors are buying at the bottom end. The once middle mover is now extending their mortgage and present home.
The second problem causing tremors in markets is the pace of economic growth in China. In her press conference on 17 September, Janet Yellen pointed to slowing growth in China (and poor policy responses by the Chinese government) as a major cause of the Fed’s decision to hold interest rates. A volley of disappointing economic figures, together with slowing headline growth, has contributed to a sense that China is on the slide, which could have major implications for global growth, already witnessed but the closing of the NE steel plant due to China dumping cheap steel on World markets.
In September, Chinese manufacturing activity reached its lowest ebb for more than five years. The Shanghai Composite Index has lost two fifths of its value since its record high in June (although it had clearly overreached itself and is now at the same level as it was in February). Headline growth in China has slowed from the double-digits of the 2000s to 7.4% in 2014. This year the IMF expects the country’s economy to grow at 6.3%, below Beijing’s 7% target, although recent weeks have also seen a number of economists arguing that the true growth figures are lower still.
The reality is that double-digit growth in China always had a time limit. From the time of Deng Xiaoping’s market reforms in the 1980s, China has been making a fast-paced transition from an agricultural to an industrial economy and, in the process, became the factory for the world.
Today, however, the country is entering a new phase of development, with greater focus on skills, technology and services. The days of fixed investment and exports driving China’s growth are coming to an end. The country is also beginning to feel the effects of its population policy since 1949. Both of these trends imply a lower rate of headline growth – not a crisis.
For these reasons it is important to look beyond manufacturing output in China and to consider the outlook for consumer retail, which must now pick up some of the growth slack. Here, the figures are more encouraging. Retail sales were up 11% in August versus August 2014. There were also positive figures for air passenger numbers, house prices, cinema receipts, and mobile phone contracts.
Although worries over global growth continued to tell on markets, the headline news of the week was that Volkswagen had fitted its diesel vehicles in the US with illegal “defeat device” software that ensured artificially low emissions readings. It quickly became clear these devices had been fitted on European cars too. There had already been concerns over the outlook for car manufacturers, given falling demand in emerging markets, but the Volkswagen case raised worries that other car companies are likely to be at fault too.
More broadly, concerns persisted over the marginal level of inflation in Europe. On Wednesday, ECB chairman Mario Draghi said that it is still too early to make a decision on a further round of quantitative easing, noting that price growth will take longer to materialize than previously expected.
Ironically although the “none rate rise” in America was welcome last week, it has to happen sometime soon. We should not fear this but instead welcome it. After six years without change, a rate rise will be a step on the path towards recovery after the financial crisis, and a sign that emergency-level interest rates are no longer needed. Similarly, although perhaps of less global significance, an eventual rate rise by the Bank of England will be confirmation that our economy is getting back to normal.
As for the world’s second-largest economy, growth has undoubtedly slowed, but that is no reason to expect it to keep sliding. Moreover, China’s contribution to global GDP growth has barely diminished since the 2000s - its growth rate has declined but remains significantly higher than the global average.
The World is on the mend, but our housing market has a bit to go, the first step is remortgaging to raise funds to improve the existing home, the second step is to move up market. It appears the UK housing market is taking the first step.
Bill Reid BEM BA NAEA DipPFS
Reid Estates