A fall in Bank Rate will act as a considerable kick-start to mortgage activity

Steve Cox, chief commercial officer at Fleet Mortgages, explores the future path of Bank Rate and why he feels we are going to move into ‘big deal’ territory over the next couple of months.

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Steve Cox | Fleet Mortgages
28th March 2024
Steve Cox Fleet 2024
"What we may see is more than one member voting for a cut, and in my view, this does open the door for a BBR drop at the 20th June meeting, and potentially one or two further cuts later in the year."

On the surface, the decision to hold Bank Base Rate (BBR) at this month’s Monetary Policy Committee (MPC) meeting looks very like the decisions to do the same over the last few meetings, but that doesn’t tell you the whole story at all.

Indeed, while by definition, every meeting which does not raise rates and which coincides with falling inflation, technically brings us closer to a BBR cut, what we’ve seen since Autumn last year, is a split vote, with some members voting for increases, others for cuts, but the majority have (just about) favoured a hold.

That effectively changed with the result from March’s meeting, where members voted 8-1 to hold rates, but the one was voting for a cut not a rise. This is a big change over the last six weeks, when at the Feburary meeting, we still had two members voting for a rise.

Of course, there could be further shifts in the weeks up until the next meeting – which takes place on the 9th May – however, if we are to believe most of the economic forecasters, then we’re going to see inflation continuing to fall.

If this doesn’t quite feel like a ‘big deal’ for mortgage market stakeholders right now – and I can fully understand why – I think we are going to move into ‘big deal’ territory over the next couple of months.

Will we see a cut to BBR in May? Perhaps, but it still feels like a number of members will need to have their minds changed quite substantively in order to vote for a cut.

However, what we may see is more than one member voting for a cut, and in my view, this does open the door for a BBR drop at the 20th June meeting, and potentially one or two further cuts later in the year.

Certainly swap rates are increasingly moving in this direction. After a period of more ups than downs through the tail-end of February and into March, recent days have seen a switch back down again.

SONIA swaps currently believe there will be two quarter point rate cuts over the next year, but my view is that this will shift further downwards particularly when we start to see some momentum in BBR cuts.

As I write, all SONIA swap rates – from two-year to 30-year – are down on where they were at this time last month, and are inching down towards where they were at this time last year.

That is important because, as we know, we saw very high (and sticky) inflation in the Spring/Summer of 2023 and this led once again to big jumps in swaps, considerable movement in mortgage product rates, pulling of many products and a further reshifting of the market which did no-one any favours.

A year on, the likelihood of this seems distant, and clearly if we can keep inflation in the 2-3% area, then not only do we have the conditions for BBR cuts, but we also have the conditions once again for, what should hopefully be, much more competitive mortgage pricing.

For residential that probably means rates going back below 4%, which are likely to act as a considerable kick-start to activity, while in our own buy-to-let sector, it will mean rates going below 5%, which as I’ve pointed out before, often provides that affordability cushion landlords need, and also acts as a demand driver within our mortgage space.

My feeling is therefore that, the closer we get to the next MPC meeting, the greater chance we’ll see swaps beginning to inch down again. There is of course no meeting in April, but we will have inflation figures released on the 17th of that month, and again if they do show a further drop towards that target figure, then one suspects a growing narrative will be driven around what the MPC might be willing to do.

As Andrew Bailey has already pointed out, there is no rule that says BBR can’t be cut if inflation isn’t at target, so they could act in May if CPI still begins with a three, but I think they are more likely to wait and see if we have two months of falling inflation which would surely give them the ammunition to act in June.

Overall, it’s a promising picture and one that advisers should be providing to their clients right across the board. Being ahead of any market-changing news could allow them to act fast and decisively, and certainly when it comes to the buy-to-let market, landlords are unlikely to be letting the grass grow under their feet if there is competitive finance to be had. Make sure you’re the adviser delivering it to them.

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