Hot property market could be at tipping point as fears rocking financial markets show few signs of easing

The fears gripping financial markets show little sign of easing, with investors spooked by signs of impending recessions, while inflation remains stubbornly high.

Further falls on Wall Street marked a dismal milestone with the S&P 500 falling 20.6% in the first half, a fall not seen since 1970.

The tech-heavy NASDAQ, which has been plagued by volatility, has fallen by a third this year and is on course for the biggest annual decline on record.

There are fears that, just like in the 1970s, demand and inflation will not fall easily, and that the Federal Reserve and other central banks will have to step on the accelerator of interest rate hikes to rein in hot prices.

The risk is that economies could collapse into a brick wall of recession, with ripple effects around the world.

European indices opened lower amid nervousness ahead of the latest consumer price snapshot due out later this morning.

With eurozone inflation already at a record high of 8.1%, another very hot reading for June is likely to further weigh on investor sentiment as it will bolster expectations that the European Central Bank will adopt a much tougher position in terms of the future. rate hikes.

Equities in Asia fell into the red, with Japan’s Nikkei falling 1.7% and Hong Kong’s Hang Seng 0.6%.

Although China’s manufacturing activity rebounded in June as Covid restrictions eased, supply chain issues affected the entire region.

There was a slowdown in Japan and South Korea and in Taiwan, manufacturing activity contracted due to material shortages and supply spikes.

Expectations of a sharp slowdown in demand in the global economy crystallized in the decline in the price of oil, which fell to $108 a barrel of Brent Crude, down for the third consecutive week.

Consumer and business confidence is evaporating in many countries, and with lockdown-related economies shrinking rapidly, the post-pandemic spending spree is now waning, which is expected to affect corporate earnings.

The FTSE 100 opened 0.6% lower as investors brace for another temperature check on consumer confidence.

Data from the Bank of England on consumer borrowing should give an indication of consumers’ current financial resilience, with insight into the amount borrowed on credit cards and other personal loans.

With concerns that the scorching housing market could be at a tipping point, BofE’s mortgage approvals update will also be watched closely, as a barometer of housing demand.

The crypto price slide shows few signs of a reversal, with Bitcoin still trading below the psychologically important $20,000 mark.

The fortunes of wild west crypto have closely followed stock markets and mirrored the downward trajectory of tech stocks in particular.

Now, speculators have taken fright from the liquidity issues unfolding in highly leveraged firms operating in the Wild West crypto.

Article updated – 11am, July 1, 2022

Tom Bill, Head of UK Residential Research at Knight Frank:

“There are two reasons why mortgage demand is holding up despite the presence of a cost of living squeeze that will get worse before it gets better.

First, buyers have more choice as a growing number of potential sellers sense that prices could skyrocket.

Second, with lenders withdrawing their cheapest products every week, there is an even greater urgency to act as soon as possible.

As rates rise further and supply normalizes, we expect UK price growth to subside this year before falling to low single digits in 2023.”

Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown:

“The scale of money languishing in easy-to-access, earning next to nothing economies has reached monumental proportions.

Our commitment to saving, both during the lockdown years and even now, means we now have nearly an incredible £1 trillion in savings (£994billion) in easy-access accounts.

As a result, we lose a small fortune in lost interest.

In May we saved another £5.4bn, plus another £300m with NS&I.

That’s just above the average combined total of £5.6bn in the year before the pandemic. It also takes the total of easy access accounts to nearly £1 trillion.

It is therefore particularly terrible news that the average easy access rate has only increased by 3 basis points to 0.18%. Of course, if your money is held by one of the high street giants, your money may suffer even more insulting rates, with one bank still only paying 0.01%.

You can see how low rates are in the market by looking at the rates available from NS&I – which, by definition, should offer something reasonable without going overboard.

The last time the Bank of England was at the same rate as in May (1% in February 2009), NS&I was offering 1.71%.

Currently, the same product offers 0.5%, less than a third of the interest.

Part of the blame lies with the high street banks, who are still sitting on a pile of foreclosure savings in easy-access accounts, so they don’t need to offer anything particularly competitive, this which drives down rates across the industry.

Fortunately, easy access rates have increased among newer online banks, which are vying for market share.

You can now get up to 1.45% from Al Rayan Bank, as long as you can keep a balance of £2,500 in the account.

You can also earn 1.4% from Zopa with no strings attached. If you’re willing to switch checking accounts, you can get 1.56% from Virgin.

For the money you really need to keep savings easy to access, including your 3-6 month emergency fund for essential expenses, if your money is languishing in an account with a high street bank while you are hoping for a rate hike, now is the time to stop waiting and start changing,

For the money you need over the next five years, but not immediately, you can tie it up for whatever period works best for you in exchange for more interest.

Bank of England figures show the new average fixed rate has risen 16 basis points from 1.09% to 1.25%, and you can get increasingly attractive rates by fixing them.

The best one-year rates continue to climb. Right now, by fixing for a year, you can earn up to 2.7%, up from a better rate of 2.4% a month ago.

If you don’t want to repair for a full year, you can earn 2% by fixing for six months through a savings platform. HL Active Savings offers 2% over six months through BLME. »

Sarah continues:

“It was a miserable May for loans.

The figures reveal a double debt warning, with more of us borrowing more on things like credit cards and mortgages in a bid to stay on top of rising prices, while mortgage approvals hold steady , although it is beginning to be predicted that the heat will exit the market.

Mortgage approvals are a useful measure of the health of the real estate market, as they show how enthusiastic buyers are right now.

The fact that approvals are still below the pre-pandemic average in May is perhaps another sign of the heat coming out of the market.

It comes on the day Zoopla said house prices went nowhere in May, rising 0.1%, the slowest monthly rise since December 2019 – before the pandemic hit the UK. United.

It is now posting annual increases of 8.4%, so as far as Zoopla is concerned, the days of double-digit growth are over.

He also noted that while demand from buyers was still high, it was falling day by day, meaning it takes longer to agree a sale – in London this stretched to 35 days .

We also heard the first notes of caution regarding the future of house prices and the first forecasts of lower house prices.

And while these are currently a few isolated voices. price growth is very likely to fall back to at least low figures by the end of the year.

Meanwhile, we have borrowed another £400m on credit cards.

The horrific price hikes in April will have left millions with a financial headache in May, and while some people have lockdown savings to fall back on, many are forced to borrow instead.

Even before Awful April and Miserable May left us struggling to make ends meet, we were falling back more on our credit cards.

The only silver lining is that credit card borrowing is slightly below the pre-pandemic 12-month average.

If you’ve used credit to fill the gap, it’s important to keep in mind that it’s not a long-term solution.

Unless you can simultaneously start cutting costs, you’ll end up with even bigger problems, as you’ll have to pay escalating debt charges on top of everything else.

This means that we all need to review our budgets and check that we are doing everything we can to limit our spending.

If Miserable May can turn to Just-about-managing-June, there won’t be much to celebrate, but it will put the finances in a much better place as we face July.

Susannah Streeter

Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown.

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