After a few weeks lull from 24/7 commentary on when and whether we will leave the EU, it’s back to uncertainty and Brexit fog. Boris Johnson’s premiership and new cabinet looks like the relaunch of the Leave campaign team. With so many unhappy ex ministers on the backbenches and the parliamentary mathematics looking even more unworkable now, it looks pretty clear to me that Boris and his cabinet are revving up for an election. The first YouGov opinion poll since Boris got his feet under the prime ministerial desk has bounced the Conservatives to 31% (up 6) and pushed the Lib Dems back into third place at 20% (down 3). Labour are in second place at 21% (up 2) and the Brexit party have fallen back to 13% (down 4). If Boris calls an election in the first week of September, I think we will either see a Tory victory determined to make Brexit happen on 31 October or a hung parliament that could make Brexit impossible.
I had to choose a product switch on one of my mortgages this weekend. This seemingly trivial piece of housekeeping cast me into the throws of economic prediction as I grappled with the dilemma of either a 2 year fix or a 2 year tracker. Where on earth are interest rates heading in the next two years? The Bank of England is sticking to its mantra that they are likely to rise. But the governor Mark Carney has been saying that for the last six years. Just saying it seems to be sufficient, the monetary policy committee has never actually had to take the plunge, other than the increase in August 2018 from 0.5% to 0.75%.
I was product switching with The Mortgageworks (TMW) and my choices were 1.99% fixed for 2 years or a 1.94% 2 year tracker with the option to switch to fix at any time. The safest choice is the 2 year fix, but it has higher early repayment charges (3% in Year 1, 2% in Year 2) than the tracker (2% and 1% respectively) and there is a small chance I might need to raise some capital next year. I wouldn’t mind paying a 1% ERC but not 2%. But I would feel resentful if rates go up and I end up on 2.19% or even worse 2.44%. However a no deal Brexit could see bank base rate fall back to 0.5% and I could be very smugly paying a mortgage rate of 1.69%. Swap rates – a predictor for where rates are heading in the future – have fallen over recent weeks. If we do Brexit, I think the economy will suffer and interest rate increases are unlikely for at least a year. If we don’t Brexit, I think the economy will bounce and it is more likely that interest rates will go up sooner. Brexit day is just 3 months away, but it is impossible to know what is going to happen.
My other concern is that with house prices falling 4.4% over 12 months to April in London in the latest ONS/Land Registry figures, 3 months of uncertainty is enough fuel to drive the housing market lower – and then the winter months are not best for a housing market recovery. So unless Article 50 is revoked, I think we are going to see house prices sliding until at least Spring 2020. A correction is no bad thing, but I fear leaving the EU will suppress house prices in London until at least 2021. The only chink of light is the Capital Gains Tax changes on Lettings Relief that will come into force on 6 April 2020 that could encourage some landlords to sell, thus increasing transactions which fell 4.6% in the first half of this year according to rightmove.
I bought at auction on 13 March 2019, when the last cloud of Brexit fog was probably at its thickest. It was literally impossible to see beyond 29 March 2019 and I’m sure that spooked many buyers. In a stroke of good luck, I pounced on a property at 15% below its guide price after it failed to sell and felt buoyed by the prospect of having banked some instant equity. I wondered if I’d managed to time my purchase perfectly – as I had unwittingly with properties I’d bought in 1995 and 2009 when the market had bottomed out. Now I’m worried my instant equity will get eaten up by fear of Brexit price falls. Foxtons has just reported a pre tax loss of £3.2m up from £2.5m of losses in the previous half year. I remember Foxtons reported similar figures in 2006/7, so this could be a bad omen. Of course only time will tell. I’m just happy I didn’t buy over the guide price, a rare treat.
The TMW deadline struck at 11pm a couple of days ago and I opted for the two year tracker. I’m in good company. Veteran analyst, Ray Boulger was reported in The Times the same day saying that “the argument for taking out a tracker is stronger than for some time. The best of both worlds is to pick a tracker with a view to fix the rate when you think the time is right.” There are much cheaper rates than TMW’s rather dull product switch rates and I would recommend avoiding this lender until they stop treating loyal customers with such contempt. But this isn’t a good moment for me to remortgage, so I’m staying put and making do with a product switch for now. Wish me luck with my tracker and I shall see you on the other side of the fog.
