The Brief: The average five-year fixed-rate mortgage continued its ascent on Monday as it hit 6.19%, its highest in 13 years. The average two-year fixed-rate mortgage, on the other hand, also sustained its increase to 6.31% after breaching the 6% threshold last week. Finally, the bond market suffered another blow as it started the week with a 4.68% rise of the 30-year gilt.
Why It Matters: The Bank of England’s announcement of a new short-term funding facility and its increased bond-buying activity before its £65 billion programme expires were expected to appease the highly volatile financial market this week. However, investors remain uncertain as reflected in Monday’s market reaction.
Finanze® Foresights: The BoE’s first market intervention after the chancellor’s mini-budget speech calmed down the market within hours after the central bank made the announcement. However, there seems to be less positive reaction this time around because the measures being introduced are mostly temporary. Therefore, the rising cost of borrowing will continue to affect affordability and drive house prices to contract sharply from its flat trend in the previous quarter. We’re also anticipating that some lenders will continue to reduce their loan sizes in the coming weeks. However, the drop in house prices will not be as severe as the country's experience during the financial crisis in 2008, as the effects of the stamp duty tax cut and undersupply of housing will help keep prices from falling drastically.
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