Steve Devine, Pinnacle Insurance
I would concur with the Institute of Directors in pressing for a rate cut this week. The end of the high-street boom, manufacturing continuing to struggle and confidence falling almost by the day should be sufficient in bringing about a rate cut. But the effect on our economy from a war with Iraq on our economy will depend on how long it goes on for.
I think a war will happen and dragging it out just increases uncertainty, which no-one thrives on. If it is soon, short and sharp, then it will not damage our economy too much. If it becomes a long protracted engagement (and I have read that our troops are being told it could last three years) then I think it will drag our economy down further than we can afford to go.
All in all there are some dark clouds on the economic horizon.
Paul Fletcher, MortgageSecure
The problem with any hostility is that it introduces doubt and uncertainty into people’s minds which usually results in volatility. Markets are driven by the forces of fear and greed, and war is likely to fuel the fear factor.
Interest rates are likely to remain under tight monetary control, but uncertainty with regard to jobs and bonuses may stall mortgage lending in the short term. If and when the war starts, part of the uncertainty would have been removed which will be a positive factor, and a long drawn-out conflict merely makes it a manageable problem for most people. The overall effect on the mortgage market of a potential war with Iraq is likely to be only slightly negative in both the short and longer term. The fundamentals behind the demand for housing and the desire to access competitive products are too strong for the doom and despondency prophets.
Michael Bolton, BM Solutions
The mortgage market is strong enough to weather bad news, but like most industries it does not like uncertainty. If the war is resolved quickly, then we can expect the economy to gather momentum and base rates to finish the year at around 4.5%. If the war drags on, then the Treasury will have to balance an interest rate drop with price rises in the housing market and increasing consumer debt levels.
However, the last few months have proved that the customer’s attitude is everything. House values are still the talk of middle England, with mortgages and remortgages still moving, strongly supported by low levels of unemployment. BM Solutions’ latest Specialist Mortgage Advisor Regular Tracking (SMART) index revealed intermediaries expect sub-prime mortgages to rise by an average of 4.9% in the first quarter compared with 4.3% for self-certification cases, 2.4% for mainstream and 2.1% for buy-to-let cases.
The message is this: if consumers remain positive amid potential bad news, then I believe the market will remain strong with house price inflation at 9% this year.
Steve Holt, Best Advice Mortgage Network
As a past serving member of our armed forces who served in the last Gulf War, and left shortly afterwards to join the mortgage industry, I have been reflecting on what effect, if any, a new conflict may have on us.
If the last conflict is anything to go by, then we can expect it to last only a short time with minimum casualties, it hardly caused a ripple within the mortgage industry, or so I am told. Let us hope if it is to happen, the next conflict is also over quickly. But what would happen if it turned into a long and protracted war? Consumer confidence would decline, interest rates would rise and the market could be become very depressed. In short, people would stop buying. If we must have another war in the Gulf, let us hope it is a quick one.
Matthew Russell, The Mortgage Business
As we seem to be approaching a situation that is almost inevitable, and see Mr Blair talking the French into reconsidering their stance, then the effect of this on the mortgage market and interest rates in general is being questioned. The Chancellor advises £1bn has already been put aside for the possible conflict, which it is hoped will be sufficient for a short-lived conflict. However, a war does restrict consumer spending and confidence, and with oil prices increasing the knock-on effect is dramatic.
A further concern, with respect to interest rates, that was recently highlighted, was whether the Chancellor has got his pre-Budget figures right. If the figures are wrong and we need to borrow more to balance the economy, then this will drive interest rates up accordingly, and slow down the relatively buoyant housing and mortgage market. Any effect of this would not take place until the latter half of 2003, but from predictions at present on the wholesale money markets, rates are not expected to rise.
Stuart Glendinning, moneysupermarket.com
The stock market has already demonstrated what impact the impending war is having, albeit other factors, such as speculation about a market downturn, have also had an impact. However, the stock market gloom will eradicate any chance of interest rates moving up. The Treasury has bigger fish to fry than worrying about house price inflation ‘ such as funding a war and the impact of increased Government spending at a time of falling tax revenue. Nonetheless, one ‘plus’ (although war is not something that should be weighed up in terms of financial pros and cons) is that mortgage payments are unlikely to be going up. As regards to transactions, I do not believe a war would have a noticeable impact on the number of people either moving house or seeking a remortgage, not unless it turned out to be very long and/or worse still, resulted in significant casualties for UK forces.