What Impact Could the Russian Invasion of Ukraine Have on the UK Property Market?
Written on 25 February 2022
The shocking events of the last couple of days, in which Russia began their invasion of Ukraine, have left many wondering what ripple effect this could have on the global economy and markets. With regards to the UK property market, there’s hopefully no cause for concern.
Will It Reduce Availability?
After shocking events, we often see some lenders withdraw from the market. Usually temporarily as a precaution until the situation becomes clearer, or if they rely on securitisation or other wholesale funding lines and funding dries up.
In the last decade we have seen this immediately after the Brexit vote and following the COVID-19 lockdown. There is no sign of this currently happening but if it does it will be the specialist lenders who are affected.
How Will Rates Be Affected?
Perhaps bizarrely, the effect on mortgage rates is likely to be that further rate increases will be muted and some of the recent increases will be partly reversed next month.
In times of financial stress investors will often look for safety and you don’t get much safer than Gilts. As a result, much of the increase in yields following this month’s MPC meeting when we were only one vote away from the increase in Bank Rate being to 0.75% rather than 0.5% has been reversed.
For example, the 5-year gilt yield peaked at 1.53% 10 days ago and today is 30 basis points lower at 1.23%. This fall has not yet been fully reflected in swap rates, but it indicates the short-term direction of travel.
The next MPC Meeting is on 17 March, and what last week looked like an almost certain increase in Bank Rate to 0.75% is now much less certain.
Hence my suggestion that the recent upward surge in mortgage rates will be at least stemmed after any existing increases already in the system have worked their way through and have possibly partly reversed.
Therefore, the message to potential borrowers is no need to panic. Mortgages will continue to be readily available to credit worthy borrowers and may even get a little cheaper over the next month.
Category: Property Market