over 3 years ago • 2 mins
Home prices are soaring and mortgage rates falling on both sides of the Atlantic. But the diverging fortunes of the US and UK’s currencies making its main stock index worth less than Apple isn’t the only trouble brewing in Britain… ☕️
A widely followed report from UK mortgage lender Nationwide **on Wednesday showed the average UK home price hit a record high last month. **Barratt Developments, one of the country’s largest homebuilders, also flagged surprisingly strong demand – helping its stock price climb despite it scrapping dividends.
Across the US, meanwhile, home prices grew 5.5% in July – while the average interest rate on popular 30-year fixed mortgages is below 3% for the first time ever. Recent central bank activity – including quantitative easing – has had the same effect in the UK, sending mortgage rates there to even lower record lows 🕴
But while US stocks’ recovery has had a similar “V” shape to the housing market’s, the same can’t be said for UK share prices. Thanks largely to the dollar’s decline in international value, and the British pound’s corresponding rise to its highest level since 2018, the UK FTSE 100 index is now down 22% since January – below where it was on the day of the 2016 Brexit referendum…
UK manufacturing activity has bounced back, outstripping the eurozone. Since the FTSE 100 includes many multinational companies – where a stronger pound makes overseas profits worth less back home – investing in a fund tracking the more domestically focused FTSE 250 index instead could help investors take advantage of this.
For Finimizers already in possession of a nest egg – and who’ve read our **Housing: Rent Or Buy? **Pack – low mortgage rates and other perks may make this an attractive moment to get on (or up) the property ladder. Still, with pandemic-related government stimulus measures rolling back around the world, recent home price climbs are unlikely to prove sustainable – and so could related rises in borrowing.
It’s likely that governments will eventually have to raise taxes – as well as more debt of their own – to pay for the recent support packages. But that’s no mean feat: just ask Japan. Unless the UK’s central bank follows the US in tweaking its approach, the alternative looks rising inflation may necessitate a rise in interest rates that could stop any economic growth dead.
And then there’s the other big risk for Britain: its departure from the EU – scheduled for completion in just four months’ time – currently lacks any agreement on their future trading relationship… 🇬🇧
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