but Historical Trends Indicate Falls Ahead
In the week following last Wednesday’s Autumn Budget, swap rates increased by 0.13%. However, historical trends suggest there may be better news on the horizon, as revealed by Excellion Capital.
Historical Analysis of Swap Rates
Analysis shows that swap rates tend to trend downwards by as much as -0.85% in the month following a Budget announcement. Since July 2020, the largest drop in swap rates occurred after Liz Truss’s controversial mini-Budget in September 2022. One month after the mini-Budget, 1-year swap rates were down -0.75% and 5-year rates down -0.85%. However, in the month leading up to the mini-Budget, swap rates rose significantly, with 1-year rates seeing a 1.46% increase and 5-year rates seeing a +1.69% increase. While rates did fall, they did so from the highest point they had been at for more than two years.
Recent Trends
The Autumn Statement of 2023 saw 1-year rates fall by -0.43% and 5-year rates fall by -0.72%. Similarly, October 2021’s Autumn Budget and ‘Spending Review 2021: A Stronger Economy for the British People’ saw 1-year rates fall by -0.19% and 5-year rates fall by -0.11%.
Market Reaction
Robert Sadler, vice president of real estate at Excellion Capital, commented on the immediate increase in swap rates following the Budget. “The market has reacted badly to the Government’s plans, supported by the profoundly negative sentiment from lenders and investors, with both expressing concern about the impact of increased taxes on economic growth.”
Sadler added, “The Budget sends mixed messages, combining aspects of expansionary fiscal policy, such as increased spending, with the contractionary fiscal policy of increased taxation. It seems the Government is trying to drive a car with one foot down on the accelerator and the other on the brake.”
Market Frustration and Resilience
“This is causing real frustration in the market because everything was finally starting to improve after four years of continuous knocks, from lockdowns to historically rapid Base Rate increases – and this Budget is being perceived as yet another blow against the private sector in favour of the public sector; a redistribution of wealth towards the public purse,” Sadler explained.
“However, while the immediate impact has been a partial depression on real estate activity and the availability of cheap debt – as demonstrated by the impact on swap rates – we are continuing with a ‘business as usual’ mindset because that’s the example our clients are setting. Entrepreneurs are able to endure an awful lot and still persevere. Our clients are very resourceful, always updating their strategy to deal with economic challenges and we will be on hand to assist them navigate the currently muddy waters of the real estate economy.”
For more details, you can read the original article on theintermediary.co.uk
Tags: autumn budget, economic growth, excellion capital, historical trends, real estate, swap rates