The publication of a draft EU-UK Withdrawal Agreement puts down on paper the debates of the last 18 months. Its progress is far from assured, but we were also given a glimpse of what the future might look like from the accompanying political declaration. Here’s our take on the key points along with the latest UK data.
UK growth has picked up a bit of speed in Q3, judging from latest monthly GDP figures, with strength widespread. However, recent favourable weather flattered the headline rate, so a moderation in growth looks likely in Q4.
Stronger than expected UK inflation data increases the odds of another modest BoE rate hike next year, but the impasse in latest EU/UK Brexit talks means a BoE move is unlikely before spring 2019, at the earliest.
The US economy is humming and wage pressures are building, keeping the Fed on track for another modest tightening in September. UK growth, however, remains lacklustre with manufacturing in the doldrums. A BoE rate hike appears a distant prospect.
The latest set of mortgage statistics from UK Finance reveal further signs of buoyancy in the Northern Ireland housing market.
The first-time buyer market continues to post double-digit growth year-on-year. 2,700 new home-owners took out a mortgage in Q2 2018, that’s up 12.5% y/y and the highest figure since Q4 2005. Meanwhile the size of the loan advanced to new home-purchasers hit £100,000 for the first time.
Significant deposits remain a feature of the mortgage market for first-time buyers. The median deposit for both NI & UK first-time buyers currently stands at £17,000. That equates to three-quarters of the median annual salary of a full-time Northern Ireland employee aged 25-34 years of age. Few thirty year olds (the average age of a first-time buyer) can avail of this sort of cash without assistance from the so-called Bank of Mum & Dad / Bank of Grandmum & Grandad.
Unlike the first-time buyer market, growth in the home mover market remains lacklustre. The legacy of negative equity and little or no equity continue to act as a drag on this area of the market.
Only 1,600 loans were advanced for people moving house in Northern Ireland during Q2 2018. This represented a rise of 7% y/y but compares with a quarterly average of 4,000 for the decade 1997-2006.
Remortgage activity, which accounts for one-third of mortgage activity, has also been on the rise. The number of loans remained flat at an eight-and-a-half year high of 2,300 in Q2 2018. This represented a rise of 10% y/y but is still only one-third of the volume of remortgage activity that occurred between 2005-2008.
Overall, activity in Northern Ireland’s mortgage market continues to recover from the biggest property downturn in UK history. The first-time buyer market is driving this growth which in turn is being supported by individuals with access to sizeable deposits.
As far as deposits are concerned, the would-be first-time buyer market is being split into haves and have nots. For an increasing number of aspirational home-owners, saving for a deposit is particularly challenging within the context of ongoing house price growth, strong rent inflation, modest wage growth and rising utility bills.
Smile. Unemployment is 4% in the UK. Last seen when Derby County won the league, Harold Wilson was PM and ‘Make me smile (come up and see me)’ topped the charts. We’re practically German (3.4%). Employment rose 42k in Q2, full time jobs up 105k (so a fall in part time). True, the money’s not great. Average pay growth slipped to 2.4%y/y in June, barely above the preferred measure of inflation (2.3%). We’re treading water. Otherwise, it’s hard to fault the figures. Jobs are more secure and ¾ of the increase in jobs are high skilled. Many may be on holiday. But the labour market certainly isn’t.
Today’s hike in interest rates is certainly important, symbolically at least, with Bank rate moving above the emergency level introduced straight after the financial crisis for the first time.
There’s no shortage of information on the housing market, telling us how prices and sales activity for instance are changing on an annual, quarterly or even monthly basis. These surveys are important and give us a flavour of how the market, which is a key part of the economy, is performing. But there is a danger that we get too fixated on these numbers and miss a more important trend.
The squeeze on living standards hasn’t gone away
In recent months an emerging narrative has been that the squeeze on UK living standards has relaxed or even ended. This refers to the pace of annual earnings growth overtaking inflation. However, real earnings growth remains modest at best. Meanwhile the squeeze continues for public sector workers on pay caps (1% p.a.) and households experiencing a multi-year freeze on working-age welfare benefits (until 2020). In light of the fact that the price of necessities including utility bills, motoring costs, rates bills and private sector rents (for Northern Ireland) are all rising at substantial rates and above the headline rate of inflation, it is premature to talk of a meaningful end to the cost of living squeeze. Continue reading
A graph charting instances of house prices being discussed at dinner parties across Belfast and Dublin would show a very large spike around 2007 followed by a deep trough in the years after the boom rediscovered gravity. Indeed, the subject became almost taboo as the downturn unfolded and residential property prices fell almost 60% from their respective peaks.