With increased media commentary about rising mortgage rates and their impact on consumers – how concerned should we be? Julian Menges, Head of Strategy at Casterbridge, offers a snapshot of his thoughts and reminds us to keep the media’s take on events in perspective.
As our previous commentaries have referenced, for the past 18 months or so, we have been concerned that inflation would rise higher than expected and stay stickier than expected, i.e., it would take time to fall again for various reasons, such as post-pandemic supply constraints, the green revolution and wage rises, to name just a few. We are therefore not surprised to see UK bond markets wobbling again and the Bank of England continuing to raise interest rates, attempting to bring inflation under control and rebuild their credibility.
Rising mortgage rates will cause real problems for many people, so it is a concern we should be aware of. However, we would make a couple of counterpoints: first, much of the media love to run with negative headlines, so we need to keep perspective of how much of the population is affected – a large percentage of the population mortgage-free or on fix-rate deals, so not everyone is impacted by the current issues.
Secondly, we are already considering this issue within our asset allocation and fund/stock selection. We have been underweight Bonds for well over a year and have only recently been increasing exposure now that yields offer better value and some compensation for increased inflation risks. We have also been selective in which equity funds and stocks we buy, for example, avoiding those which might be impacted negatively by rising inflation or a weaker consumer.
Finally, despite the additional risks we continue to see elsewhere in the world, we should remember the many positives at play: momentum in the UK economy is building, unemployment remains low, and wage inflation remains in high single digits; interest rates on savings are increasing, utility bills are likely to start falling through the summer, and consumer spending (from those not hit by rising mortgage rates – or watching the news too much) should continue to remain strong.
These are all a reminder to keep the negative news in perspective.
Julian Menges – 20th June 2023
Important information
This article is for information only and does not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this article are those of Casterbridge at the time of writing and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it, may go down as well as up and the investor may not get back the original amount invested.
