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UK PIN Fund Falls by 6% in The Second Quarter

Peter Hemple reviews our fictional Fund of listed property-related companies

There was a clear divide in our UK PIN Fund in Q2, with housebuilders, which account for 50% of the Fund, sliding by around 9% and the rest of the Fund falling by around 3% on average.

At the end of June, the Bank of England (BoE) raised the base rate again, for the 13th consecutive time, by 0.5% to 5.0%, which led to many economists accusing the bank of trying to trigger a recession in an effort to bring down inflation. The base rate is now at a 15-year high and the general consensus is that the Bank will continue to raise rates later this year, with Schroders reporting at the end of June that it expects the BoE to raise rates to 6.5% by the end of 2023.

The latest BoE decision followed an announcement from the Office for National Statistics (ONS) that inflation remained high in May at 8.7%, which is more than four times the government’s target of 2.0%. It is also much higher than the inflation rate of 5.5% reported in the eurozone in June (down from 6.1% in May).

All of this is filtering through to much higher mortgage rates in the UK, and according to Better.co.uk, a typical standard variable rate (SVR) mortgage was 7.06% on 3 July, more than two percentage points above the UK base rate. The SVR a year earlier was 4.53% the company added.

According to UK Finance, there are 1.4m homeowners on variable rate deals but a further 2.4m fixed-rate mortgages are due to end between now and the end of 2024. Statistics from the BoE show that the average rate on outstanding mortgages grew to 2.82% in May, which is far lower than the typical rates for a new deal, with the latest data from Moneyfacts showing that the average rate on a two-year fixed loan is now 6.37%, which means most homeowners and landlords coming off of fixed rate deals are facing a doubling, or even tripling, in loan interest expenses over the next 18 months. 

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