Falling mortgage rates have brought a fresh kind of borrower indecision – Cox
We finally have the bank base rate (BBR) cut we’ve all been hoping for, and while the earth didn’t move, it’s certainly a decision that is a damn sight better than where we’ve been over the last four-and-a-half years.
Going from 0.1% to 5.25% has been an uncomfortable ride to say the least, and borrowers have clearly suffered as a result of some monumentally stupid political decisions, plus of course inflationary factors that might have been beyond our control but should/could have been handled better.
This raised questions around just what impact a BBR cut might have on mortgage rates and how quickly we might see the further reductions to the central rate.
As we can see, product rates have been moving southwards, likely because lenders are going to want to secure business before year end.
The first half of the year has seen a lot of ups and downs, opening positively but tailing off through the spring and certainly as the election campaign got underway. We might all hope we have a better end to 2024 than the recent months of activity, and that is certainly something to be positive about.
A combination of the BBR cut, swaps dipping further and the lender quest for volume, in both the residential and buy-to-let (BTL) space, should elicit a more competitive rate environment, which can hopefully feed into a resurgence in demand that this greater period of stability might deliver.
What lies ahead for the BTL market?
We’re acutely aware that, in the private rental sector (PRS) and BTL space, a large number of landlords have been waiting to see the rate lay of the land, plus how the new Labour government might move forward in these sectors, before making any sort of move.
Coupled with the potential for something like a purchase revival, we also have a significant cohort of landlord borrowers coming to the end of their deals.
Specifically, I wanted to point out that in autumn this year, we will be two years on from the post-mini Budget period, and I suspect that advisers will be able to secure those landlords coming up to refinance then with more competitive products than they were able to in 2022.
And while the Bank of England was quick to point out that multiple rate cuts in the months ahead are not likely, we might all believe we’ll see another quarter-point drop by year end, with the potential for further cuts in 2025.
That leaves borrowers of all persuasions with some interesting decisions to make, particularly if they do believe the next 12-18 months will see rates falling, potentially multiple times.
Borrowers chasing the market
In the residential space, I’ve been reading about a growing interest and demand for tracker products, which makes sense to me.
If you have a borrower who is anticipating some significant and, notably, quick, falls in BBR that will not only make that existing tracker mortgage cheaper, but provide an element of flexibility to be able to move to a cheaper fix, if or when the borrower feels rates have hit something of a floor.
We offer trackers across our three core ranges – standard, limited company, and houses in multiple occupation (HMOs)/multi-unit freehold block (MUFB) – and it will be interesting to see in the weeks and months ahead if advisers and landlord borrowers feel these are products worth accessing over the short term.
Will they feel able to take a slightly higher rate over that period in anticipation of moving to a much better fixed rate, perhaps next year?
As always, affordability will determine a lot of this, because it’s been evident for some time that landlords were needing to choose longer-term fixes, and their cheaper rates, in order to secure the level of loans they require to stay invested and/or access built-up equity to put towards further additions to the portfolio.
It is, of course, very early days, but as you would anticipate, if we are having conversations about rate movements and product changes right now, then so is the entire market.
This could be the start of a flurry of lender movement and hopefully advisers start to see a similar level of activity from their client base.
The BBR cut is of course welcome news, and let’s hope it is just the beginning of a journey to a much lower rate environment that stimulates the market and our businesses.
