Market data is being skewed favourably leading to misconceptions
While the market appears to have shown some signs of stability at the beginning of 2023, one expert has said data is being skewed favourably which is leading to misconceptions.
Richard Campo (pictured), founder of Rose Capital Partners, believes drawing insight from the Financial Times Stock Exchange (FTSE) is misleading as it does not factor in the weak pound. This, he said, makes the UK look good for M&A activity, as weak UK companies are being snapped up by large internationals, and profits are being bolstered by cutting jobs.
However, while Campo believes the outlook in 2023 does not paint a positive picture, he said 2024 looks far rosier.
Market outlook – the picture
“After a relatively robust job market last year, it has weakened significantly, with job cuts across the board,” Campo said.
He believes this sums up the UK economy at present - low growth, weak job market and stagnant property market.
However, roll the clock forward 12 months, and he said most analysts are predicting rising house prices again, with London leading the way, a stable and growing job market, and lower interest rates.
“So, 2024 looks much rosier in comparison to 2023; in fact, those who buy in 2023 may look back on it as possibly the best time to buy in a generation,” Campo said.
He added that the simple fact is the UK has not built enough of the right types of homes for over 30 years, and this lack of housing will continue to create pressure on the housing market, inevitably leading to house prices rising again.
“Every market is cyclical, so while 2023 may be a relative downer in the short term, no-one I can see is predicting the long term issues we had to dig our way out of from 2008 onwards,” Campo said.
Market outlook – affordability hurdles
Campo said the main difficulty expected in the market this year is affordability, due to the stance taken by lenders in recent months.
While Campo said it was reasonable for lenders to stress rates at between 5% and 6% when the UK base rate was sub 1%, he believes the current practice of stressing new mortgages at between 7% and 8% is excessive and stifles the market.
Campo added that no-one is predicting rates to go that high, so he believes stress testing rates at that level simply strangles the market.
“If lenders can take a more logical view on their affordability models, it will allow more first-time buyers into the market which is always positive, and it will also allow many people to refinance easier and avoid going on to costly Standard Variable Rates (SVRs), or taking a product transfer when other lenders have better rates,” he said.
Campo added that this issue is starting to be addressed, but needs to happen much faster. Borrowers with debts and children are particularly disadvantaged, so he believes it is important that this is rectified quickly.
Read more: Home loans for first time buyers in the UK
Market outlook – overcoming challenges
To overcome these challenges, Campo said borrowers need to consider old-fashioned principles such as paying off debts, avoiding unnecessary finance, paying bills on time, and building an emergency cash pot, ideally a minimum of three months’ pay.
He said that harsh choices need to be made, such as forgoing luxuries like a new car on finance, meals out, or taking foreign holidays.
“I appreciate from a lifestyle point of view they are tough choices, but coming out of an ultra-low interest environment the last 10 years has seen is like coming off drugs cold turkey,” Campo said.
He added that while it may be difficult to adjust to the rising interest rates quickly, taking a short, sharp pain to adjust one’s lifestyle will make customers a better bet for lenders and more likely to get lower rates on their mortgage.
“This will allow them to reintroduce luxuries more quickly in the long term and avoid building up expensive debt while their disposable income no longer supports their lifestyle,” Campo said.
How do you believe the outlook for the market in 2023 is shaping up? Let us know in the comment section below.