The Bulletin has been designed to present AMI members with the current economic highlights while providing a view on where these key indicators may move in the future. It also focuses specifically on the UK housing and mortgage markets whilst drilling down into mortgage information on markets such as buy-to-let and equity release, plus figures on mortgage delinquency.
Key highlights of the Quarterly Economic Bulletin for Q2 2007:
Inflation:
- Record CPI and the highest RPI for 15 years shock financial markets
- Mervyn King forced to write a letter of explanation to Gordon Brown
- MPC will act decisively to restore Bank of England’s dented inflation-fighting credentials
- Market expectations for interest rates rise
- The wider economy remains strong and well able to withstand higher rates
- Tentative signs of cooling emerge as price growth decelerates and mortgage approvals level off
- First-time buyers deterred by decreasing affordability
- Early signs of disruption caused by introduction of Home Information Packs (HIPs)
“Inflation currently dominates the UK’s economic picture - how high it will climb and how quickly it will fall, how much of it is becoming anchored in expectations, what the Bank of England will do about it, and how serious the impact will be on other facets of the economy. Although the Bank has said it is not too worried about the rate of earnings growth, it won’t be taking any chances either with inflation or with its dented reputation, and financial markets have now priced in the likelihood of base rates rising not just to 5.5 per cent, but to 5.75 per cent.
“House prices continued to rise briskly in the first quarter driven by the continued shortage of supply. Inevitably, higher interest rates will slow the market, both in terms of price growth and the number of transactions and there are already early signs of a slowdown.
“The budget did nothing to assist first-time buyers and they become increasingly scarce. Propertyfinder’s research shows that first-timers have fallen to less than a quarter of all buyers from a third a year ago.
“Mortgage approvals for home purchase for the three months to the end of February (latest Bank of England data) were flat on the same period a year earlier at 264,000. We suggested in our last report that volumes of new mortgages may have peaked as higher interest rates began to reduce demand. The latest figures are consistent with that notion and we should expect mortgage volumes to begin to decline as interest rates continue to rise.
“The collapse of the US sub-prime mortgage market has not surprisingly raised fears that the UK may follow suit. Undoubtedly risks are rising in the UK market, but so far, we are not seeing the same conditions as in the US.”
