Mortgage pain and bestselling investments

More mortgage pain this week as HSBC raised rates for new customers not once but twice in a week, followed by NatWest and Nationwide on Thursday. The average rate on a new 5 year mortgage has increased to 5.56% , and the average 2 year rate is 5.92%, according to Moneyfacts.

The average 2-year fix is now about 0.4% more than it was just two weeks ago, and with 1.4 million fixed-rate deals coming to an end this year, the scale of the pain is broad. And as always there’s a ripple effect. That’s 1.4 million households with less to spend on goods and services elsewhere.

Interest rates are now forecast to go up to 5.5+% later this year as the Bank of England fights its unpopular fight against inflation which is proving stickier and more persistent than many had hoped. But over the mid-term some storm clouds suggest that things will start to naturally slow as we feel the pain of less money in our personal and corporate pockets.

What’s the outlook?

This week I spoke to a number of estate agents in various parts of the country who all reported slowing interest and fewer buyers. I saw that recruitment firm Robert Walters issued a profit warning this week – hmmm. Anyone who tried to employ people at the end of 2022 knows that recruiters were like the Cheshire Cat. Not so any more which gives you a blunt picture of a slowing recruitment market. And on Wall Street redundancies loom, as Citigroup announce plans to complete 5,000 redundancies by the end of June.

These signals all point to a slowdown or possibly a recession.

Oh Woe Woe and Thrice Woe… hang on a moment

It’s not all doom and gloom and the economy grew by 0.2% in April. Jazz hands. But pained mortgage holders take note – if markets behave logically (which is a bit like saying if a toddler behaves logically) then rates will not continue to rise indefinitely as other cracks get deeper. The current forecasts are for rates to peak at around 5.75% later this year. But then to come down.

Don’t let the press freak you out. There are some naughty click-bait-y headlines around, citing huge potential leaps in £ monthly mortgage payments and creating fear. Behind these headlines lie all sorts of silly assumptions, such as everyone letting their mortgages roll over to the dreaded Standard Variable Rates (or SVR which I think of as Shyster Vulture Rates, to be avoided if humanly possible). So choose your information source with care, before anyone puts the fear of God in you. Remember that bad news sells.

And what are investors up to?

Despite the turbulence, investors are continuing to put money into the markets. The FTSE 100’s been bobbing around for the last 6 months, slightly up but nothing dramatic. The S&P 500 in the States is up. And as I reported last week, over in Japan, the Nikkei has been having a lovely time, enjoying a rare moment in the sun.

We’ve rounded up the most popular funds, investment trusts and ETFs bought on investment platforms in May and share these here.

It’s all business as usual really – Fundsmith Equity tops the fund lists. With Fidelity’s Index World and Vanguard’s 100% Equity also popular.

In Investment Trust land, Fidelity European Trust is a new face in the bestseller lists for May. And in the world of ETFs, Invesco’s Nasdaq has fallen in popularity after a month of glory in April.

If you short-circuit still at the thought of building your own portfolio, and are on a learning path here, then our 10 Investment Commandments might help.

Have a great weekend everyone.

Holly

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