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It is difficult, amidst the uncertainty that currently besets the nation, to set down any economic predictions for the post-brexit world with any degree of confidence. It seems that, contrary to expectations, the closer we get to “Brexit day,” the further we move from any hope of a resolution. The best we can do, therefore, is look at the economy as it currently stands, at the various data points that signify economic health or frailty, and project the economy that this data depicts into the range of possible futures that lay in wait for us. Is the British economy a frail, lumbering beast, one sustained gust away from collapse; or is it a strong, sturdy creature, able to weather even the most brutal of storms without so much as a misstep. As with most things, the truth lies somewhere between the two extremes – though a good deal closer, it seems, to the latter than the former.
House Prices
The property market, to begin with, seems to be showing signs of hesitancy, with a number of house price indices coming out over the past few weeks showing subdued levels of annual house price growth. Rightmove, Nationwide, the ONS, and Halifax, for example, reported annual growth of 0.2%, 0.4%, 1.7% and 2.8% respectively. The Halifax figure doesn’t give much cause for concern – their index actually reported a monthly increase of 5.9% in February – but the other three indices are all lower than would have been expected under normal market conditions. Market conditions, however, are not normal; they are as abnormal as they are likely to be at any point in the foreseeable future, and until this abnormality is wiped away and a new normal established, house price growth can be expected to remain at the levels that are currently being seen.
This slowdown in prices, however, need not continue indefinitely. Many property experts believe that the reduction in activity currently being seen is entirely a product of Brexit-induced uncertainty. The demand that would ordinarily be driving prices upwards has not disappeared; on the contrary, it is dammed up, waiting for some sign of certainty before it comes bursting back into the market and renews the rates of price growth that have been seen over the past decade. We are still, after all, embroiled in a housing crisis; demand still far outstrips supply, and until this imbalance is remedied, house prices will continue edging upwards.
Mortgage Rates
Regarding mortgage rates, the Bank of England chose to hold the base rate fixed at 0.75% last week. Prior to this announcement, mortgage rates had been consistently low for well over a year, with the national press now referring to the state of competition within the market as a “rate war.” This war has been ongoing for so long now that certain lenders are beginning to wave their white flags and retreat from the market until conditions become more favourable.
But as the market becomes less and less habitable forlenders, it becomes more and more accommodating to borrowers. According to data released by Moneyfacts, average two-year fixed rates have remained consistently low for about a year now, currently bouncing around at about 2.5%. The same goes for five-year fixed rates, which have dropped from 5.62% ten years ago to 2.89% today. But the most surprising development to be spoken of has taken place – and continues to take place – in the small deposit market, where rates are currently at their lowest levels on record, and where the range of products has multiplied by a factor of 130 since 2009. This ultimately means that, at least with regards to mortgages, now is as favourable a time as ever to begin thinking about buying a property.
General Economic Overview
One cluster of statistics that’s particularly noteworthy comes from the job market. The news is currently abounding in headlines of international corporations moving their employees out of the UK and onto mainland Europe in preparation for Brexit. Anyone would be forgiven for thinking, therefore, that employment levels are on the decline and set to slide further. And yet, every time employment data is released, it paints a picture that runs contrary to all expectations: the unemployment rate is now at its lowest level since 1974; wages grew at an annualised rate of 3.4% during the three months up to and including January; and the UK economic inactivity rate, which is a measure that records the proportion of the British population that is neither working nor looking for work, hit a new all-time low of 20.7% in January. These are hardly the kinds of statistics one would expect of an ailing economy.
If we look at the British economy in more general terms, we can find further reason for a tentative kind of optimism. Inflation, to begin with, is currently sitting at 1.9%. This isn’t a statistic that’s likely to arouse any real excitement, but it’s hopeful for a number of reasons: firstly, because it’s low and stable and very close to the Bank of England’s target rate of 2%; secondly, because this rate is expected to maintain for the next five years at the least; and thirdly, because this figure is significantly lower than the rate of wage growth, meaning that real wages are now steadily increasing. (This final point can also be extended to the property market: with house price growth slowing and the wage rate ramping up, property is now becoming more affordable.)
Moving our analysis across to GDP growth rates, the economy shrunk by 0.4% in December, which seemed to presage a 2019 of stunted growth at best and downturns at worst. Even the most optimistic of economists were only willing to predict a 0.2% rebound in January. And yet, against all expectations, GDP grew by 0.5% during the opening month of the year. Doomsayers will draw attention to 2018’s figure, which was, at 1.4%, the slowest rate of economic growth the country has experienced since 2012. But looked at in another light, the UK was able to maintain a steady level of growth throughout the year despite the fact that its entire economy was paralysed by uncertainty – this appears to be even more of an achievement when taken with the fact that the German economy also only grew by 1.4% during the same period, and the Italian and Danish economies grew by even less.
As has hopefully been demonstrated, the British economy is bearing up remarkably well amidst the tumultuous waters in which it currently finds itself. On the one hand, property prices seem to be stuttering; on the other, inflation is moving along steadily at the Bank of England’s target rate; employment levels are higher than could have been predicted by even the most fanciful of Brexiteers; the economy is growing slowly but steadily and looks set to continue doing so; and mortgage rates are at historic lows.
What This All Means For Prospective Homeowners
Uncertainty still grips the nation, but mortgage lenders are doing everything in their power to insulate borrowers from the vagaries of the market and the quirks of the political system. There is now a vast array of long-term mortgage products available that allow borrowers to lock into the historically low mortgage rates currently being seen for up to ten years. These rates will not be available forever. Many pundits are expecting a base rate hike in response to an orderly exit from the EU, and this will inevitably exert upward pressure on average mortgage rates. Entering the property market at the present time may be a daunting prospect, but with the economic variables currently balanced as they are, now might be as good a time as any to steal a bargain.
