Pound steadies, FTSE 100 ticks up, Virgin Money in demand despite mortgage deal suspension and Saga misses again

“It felt like the calm after the storm on Tuesday morning as sterling stabilised and the FTSE 100 made modest progress,” says AJ Bell Investment Director Russ Mould.

“However, the risk of another squall looks high as new Chancellor Kwasi Kwarteng prepares for what could be an interesting meeting today with big bankers. Mortgage lenders pulling products from the market was an inevitable consequence of a lack of visibility on interest rates.

“There is an advantage of the Bank of England not moving on rates just yet. Conditions have been so febrile that it risked an emergency rate hike failing to make any impact on the direction of the pound – the equivalent of turning up to gunfight with currency traders with a banana in the holster.

“Governor Andrew Bailey and his colleagues will hope that allowing things to calm down first will allow any action they eventually take to have a tangible impact on markets.

“There has been at least an attempt at some co-ordinated action between the Treasury and the Bank of England to reassure investors that these situations often take on a life of their own amid continued speculation the pound might hit parity with the dollar and even the euro.

“Questions about the long-term implications of the events of the past few days might have to wait for now. Downing Street, Threadneedle Street and almost any street with mortgage holders will be crossing their fingers things don’t get any worse.

“One thing to watch closely is any attempt by overseas predators to take advantage of the weakness in sterling to buy UK plc on the cheap – something which happened after the Brexit vote in 2016 and during the Covid-19 pandemic.”

Virgin Money

“It makes sense that shares in Virgin Money have gone up after it suspended some mortgage deals.

“The rise in the cost of long-term borrowing can hurt mortgage lenders unless they can push up their own lending rates to allow for a small profit margin. Therefore, Virgin Money pulling certain deals means it can recalculate what it needs to charge to still make money.

“Under normal circumstances, mortgage lenders could do this work while still having the full range of products available to customers, but everything is moving at such a rapid pace that banks need to take stock of events and not get caught out.”

Saga

“The modern definition of the word ‘saga’ is a complicated series of events that bores people to tears, and there couldn’t be a better name for the provider of insurance and cruises to old people.

“Saga has become a right mess over the years and has turned a once-trusted brand into something many people now primarily associate with profit warnings.

“True to form, along comes another warning that it won’t hit previous guidance for earnings. Inflationary pressures in the insurance market are still creating problems, causing it to significantly lower its earnings expectations.

“Saga continues to talk about having a large database of consumers to engage with, a broad range of financial products and a travel business – essentially giving it a pool of people to whom it can sell the type of things that people in older age spend a good chunk of their money on. What seems to be lacking is the right kind of effective marketing to get people to hand over more cash.

“Insurance has been the bane of its existence for many years, and big plans to grow the travel arm have been derailed by Covid. Something about its current formula isn’t right, although it’s fair to say that some events have been out of its control.”

These articles are for information purposes only and are not a personal recommendation or advice.