The Intermediary – April 2025 - Flipbook - Page 51
SPECIALIST FINANCE
Opinion
for property investors
Elevated 30-year
yields [...] signal that
today’s trade tensions
could profoundly reshape
global supply chains”
to issue more debt as tax receipts
decline – and they want to be
compensated for heightened inflation
and growth risks.
Meanwhile, the Bank of England,
aware of the limited fiscal headroom
available to stimulate the economy,
will likely explore all options in its
monetary arsenal. That’s behind
the sharp repricing of Sonia over
recent months.
Market-implied pricing for the
base rate at the next Monetary Policy
Commiee (MPC) meeting on 18th
September has now fallen to 3.81%
– nearly 75 basis points lower than
the current base rate. At the start of
the year, that would have seemed
highly unlikely – pricing peaked
at 4.35% in mid-January. It’s been a
dramatic shi.
If swap rate beta versus the implied
base rate path worsens – in other
words, if bond yields begin exerting
more influence – we’re likely to see
a rise in the popularity of tracker
mortgage products, particularly
discounted options over 1-, 2-, or
5-year terms. These oen come
without early repayment penalties,
which is key. At some point, swaps
may catch up with the Base Rate, and
in that context, fixed-rate products
could once again look relatively
aractive. Time will tell which force
wins the tug of war.
This tension – between the Base
Rate and bond yields – is already
influencing how lenders price
mortgages, or more accurately, how
they’re not pricing them. Recent falls
in swap rates haven’t been passed on
as quickly as in previous cycles, with
lenders wary of a potential correction.
This is already shaping how investors
are structuring finance for property
deals in the months ahead.
What we must consider
In today’s environment, long-term
planning must be paired with shortterm agility. Our key messages for
property investors are:
Watch swap rates, not just bond
yields: Gilt yields are influencing
swap rates, but the relationship isn’t
linear. Swaps have traded in a much
tighter range than bond yields in
recent weeks.
Reassess fixed versus tracker
options: With heightened
uncertainty, and the possibility
of swaps catching up with the
implied path for the Base Rate – or
surprises such as a new UK free
trade agreement or fresh volatility
from the US – discounted tracker
mortgages may offer beer relative
value and greater flexibility,
especially for short-term or exitdriven strategies.
Stress-test your exits: Global
market shocks can impact both
property valuations and refinancing
liquidity. Ensure your deals are
resilient to delays, repricing, or a
change in exit conditions.
In short: UK GDP is trending in the
right direction – but global volatility
is already affecting property finance
conditions at home. Investors
shouldn’t be spooked, but they must
stay informed.
Keep your strategy flexible. Build
in contingency. Follow the data
that maers. ●
April 2025 | The Intermediary
51
