Top Moments of the Month for Mike

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Top Highlights

·??????British citizens are being offered 100% no-deposit mortgage loans for the first time since 2008

·?????Bank of England raises interest rate to 4.5%

Markets Déjà vu

Developed markets had a weak month in May with the S&P 500 yielding a net return of 0.38% and back home, the FTSE 100 returned a disheartening -6.3%. However, on a 3-year basis, the S&P 500 yielded an annualized performance of 12.4%, and the FTSE returned 11%, which plays to my thesis of staying invested to ride out the short-term volatility. For many years, the US Government has been enjoying the highest credit rating (“AAA”/” Aaa”). However, the world’s largest economy continues to face the mount hill task of an increasing level of public debt (or government spending). The total debt of the US Federal Government exceeded $30 trillion for the first time in the country’s history in February 2022 and presently stands at around $31.4 trillion. Thus, President Biden and Congress face another tough deadline to increase Uncle Sam’s debt ceiling.

The debt ceiling also referred to as the Statutory Debt Limit, refers to the maximum amount set by the United States Congress denoting the highest amount of debt (or borrowing) that the government can take. This maximum debt, referred to as a ceiling, incorporates any interest payments that the US is required to pay on existing debt. The first statutory debt limit of the US was enacted in 1939 at $45 billion, however, the country has since exceeded this limit and further pressure was mounted on Congress to raise the limit much higher in May. This led to the US technically suspending this decision until 2025, with no limit set at this time.

The United Kingdom received some indications of light at the end of the tunnel following the International Monetary Fund’s reversal of earlier remarks of the UK being the worst-performing economy amongst the advanced countries. The IMF’s latest remarks now predict the UK economy to expand by 0.4% for the year 2022, a major reversal from its previous dismal forecast. On this note, it is important to consider that in 2022, the average personal debt in the UK was ￡33,410. Although, this varies depending on the demographics of the population. Aggregate interest payments on personal debt in the country during 12 months were around ￡44,940 million or ￡857 per person annually.

Industry experts are cautioning that the cost-of-living crisis in the UK is not coming to an end, but instead transitioning into a different stage where the financial burden of food expenses is expected to surpass that of energy bills. Furthermore, inflation remains at a level exceeding 10% in the country. The IMF forecast that growth in the UK should increase to 1% in 2024, while it expects a 0.4% growth in 2023, like the Bank of England’s expectations of the economy to grow 0.25% this year, reversing from its earlier forecast in February of a contraction of 0.5%.

These forward-looking projections depict optimism, but I believe that risks remain prevalent as consumer spending remains low amid the cost-of-living crisis in the UK and further inflationary pressures. In addition, I believe that the increased rate of government borrowing poses threats to the economy with the latest report showing the country hit a borrowing rate of ￡25.6 billion, the second-highest borrowing amount since record-keeping on this metric began in 1993. Unsecured debt in the UK averaged a whopping ￡3,743, with the main contributors being unemployment redundancy, and lack of financial control.?In the UK, debt levels vary based on factors such as age, region, and gender. Households with a head aged 18-34 have the highest non-mortgage debt at ￡10,400 on average. I enjoyed Mrs. Dow Jones’s feature on the Investopedia Express earlier in May and I can resonate with her comment “The same way you can make money in the market, it can also take your wealth away” in this current environment. My advice is to track the interest rate and not have higher interest debt. Aside from a fixed rate debt costing no more than 25% of your take-home pay, adopt the philosophy of if I can’t pay cash for something, I can’t afford it. Consistency is key, pay your credit card off in full every month as no amount of frequent-flier points or cash back, is worth paying 18-20+% interest.

British citizens are being offered 100% no-deposit mortgage loans for the first time since 2008

Skipton Building Society has launched a new 100% mortgage product called the Track Record Mortgage. The Skipton Track Record Mortgage is a five-year fixed-rate mortgage charging an annual interest rate of 5.49%. Applicants can borrow from 95% to 100% of a property's value, with no deposit required. The mortgage has a maximum term of 35 years and is subject to affordability and credit score checks.

Recall in the aftermath of the 2008 financial crisis, mortgage lenders became cautious about offering high loan-to-value (LTV) ratios, with 100% mortgages deemed too risky. However, Skipton Building Society has raised the bar high as they introduced a 100% mortgage product for first-time buyers, aimed at helping them break out of their trapped rental cycles.

On an eligibility note, The Skipton Track Record Mortgage is only available to first-time buyers aged 21 and over. Applicants must have a good track record of rental payments over at least 12 months, and their monthly mortgage payments must not exceed the average of their last six months' worth of rental costs. In a press release, research has been carried out by Skipton and 35% of renters are struggling to save due to increased rental costs. However, the product has also attracted criticism, with some experts warning that 100% mortgages carry a higher risk of default and could lead to borrowers getting into debt.

There are also concerns that the product could fuel a housing bubble, with buyers taking on more debt than they can afford.

This is a bold move by the Skipton Building Society, which could help first-time buyers get on the property ladder. While the product has the potential to provide a lifeline to tenants, it also carries risks, and potential buyers should carefully consider their financial situation before taking on a 100% mortgage. I suggest you work with your financial adviser to decide on the best way to navigate this development.

Bank of England raises interest rate to 4.5%

The Bank of England has increased interest rates by 0.25% to 4.5% due to the forecast that inflation will remain high for a longer period, and the economy will perform more strongly. This is the 12th successive increase in borrowing costs, which is the most aggressive rate-hiking cycle since the 1980s. Global growth is expected to be stronger than previously projected, and core consumer price inflation has remained elevated. Given this, there have been significant and volatile movements in global financial markets due to recent events.

The key base rate of the central bank is currently higher than it has been since 2008 when the world economy was on the verge of a financial meltdown. According to the report from Threadneedle Street, UK inflation was expected to stay higher for longer than previously forecast, with the measure of annual price rises on course to remain above the Bank’s target of 2% until after the next election.

?The government's March budget proposals are anticipated to increase GDP by 0.5%, up from the 0.3% recorded in February. Indicators of ongoing inflationary pressures, such as the tightening of labor market conditions and the patterns of pay growth and price inflation for services, would be actively monitored according to policymakers. As always, drop a DM if you have any questions on how you can explore these trends into creating a sound financial plan that will help you to stay winning. Remember to stay invested always ??.

Michael Donkor

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