Must read: UK house prices, ECB rates, Nationwide buys Virgin Money

GLOBAL MARKETS

European markets have opened lower ahead of the latest European Central Bank interest rate decision. Although the central bank is expected to keep rates unchanged today, markets will be looking for clues into the timing of the first rate cut.

In the UK, Rentokil Initial (LSE:RTO) has surged to the top of the blue-chip index after results, surging 18%. Aviva (LSE:AV.) is also up sharply on earnings. Meanwhile, HSBC Holdings (LSE:HSBA) and Rio Tinto Registered Shares (LSE:RIO) are at the bottom of the FTSE 100 on ex-dividend day.

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HALIFAX HOUSE PRICES

According to Halifax, British house prices rose by 0.4% in February, the fifth straight month of growth for the housing market. However, this was the slowest pace of growth across the five months and year-on-year price growth also slowed to 1.7% versus 2.3% last month. The typical UK home now costs £291,699, up around £1,000 versus last month. Northern Ireland is the strongest performing nation or region in the UK, and London enjoyed its first positive annual growth since February 2023.

Expectations of central bank rate cuts combined with intense price competition among mortgage lenders resulted in falling mortgage rates at the start of the year. This helped spur demand for housing market activity, leading to fresh buyers returning to the market.

However, after hitting a nadir at the beginning of February, with suggestions that there could be a longer than anticipated wait before the first rate cut, mortgage rates have started to tick up once again, leading to less demand for house purchases and slowing growth in the housing market. With the macroeconomic pressures from the cost-of-living crisis and a sluggish economy, it is likely that the property market will remain subdued this year.

NATIONWIDE / VIRGIN MONEY

Nationwide had agreed to potentially purchase Virgin Money in a £2.9 billion all-cash deal. The proposed deal values each Virgin Money share at 220p, equating to a 38% premium to yesterday’s close, which is why the stock is surging today.

The combined entity is likely to create a major player in the UK mortgages and savings market. Nationwide said the takeover would ‘deepen its products and services faster than could be achieved organically.’ 

Until today, shares in Virgin Money had been struggling lately, trading sharply below levels seen in 2021 and at the start of 2022, providing Nationwide with an opportunity to snap up an undervalued asset. Virgin Money has also struggled from a financial perspective with a slump in full-year profit reported last November resulting in a series of downgrades from the analyst community. 

In contrast, Nationwide has enjoyed an earnings boost lately on the back of stronger net interest margins thanks to higher interest rates. However, that tailwind looks set to fade once the Bank of England begins cutting interest rates. It looks like Nationwide is looking to offset this by making the most of its current strong financial position, pursuing inorganic growth instead, allowing the combined group to take up greater market share in the UK.