"I have an expectation that, at this point, next month we’ll have seen some significant shifts in the Best Buy tables, particularly as many lenders will be wanting to secure business which will complete before the end of 2024."
As I was about to write this piece, the news came through that the Bank of England’s Monetary Policy Committee (MPC) had voted – just – to cut Bank Base Rate (BBR) by 0.25%.
If this felt like a ‘moment’ in our sector, and indeed across the country, then that’s because it undoubtedly is. It is the first cut since March 2020 when we were at the start of the horrendous pandemic period and BBR dipped to a mind-boggling low 0.1%.
Over four years later, and having been subjected to multiple rate rises over the course of that period which has completely changed the mortgage market environment and put many borrowers into a very different financial situation, we now have the first cut, and perhaps a signal that we’re moving back down the interest rate mountain.
As is their want – and perhaps not surprising given the close 5-4 vote in favour of a cut – the Bank have been quick to temper expectations that we can expect a similar, multiple cutting pathway back down to the ultra-low rates of four years ago.
This is highly unlikely, indeed inflation is predicted to go back up over the course of the months ahead with a potential to retreat once again in 2025.
However, given the market has been crying out for a cut to hopefully act as a catalyst to develop dormant demand/activity, then we should not pull back from feeling slightly celebratory about the fact we finally have one. And my own view tends to be that we’ll get another rate cut before the end of 2024, with further cuts throughout 2025.
As mentioned, 0.1% is a very long way from 5.25%, and the impact has been considerable, particularly for those borrowers who unfortunately had their deals coming to an end at the point when mortgage product rates were at their highest.
Now, however, it is to be hoped that we begin to see more lenders cutting pricing, even if BBR doesn’t necessarily influence product rates, and we see swap rates also trending downwards which will have a much clearer impact.
That will certainly be the wish of many would-be first-time buyers who have probably looked at mortgage pricing over the last 18-24 months and wondered whether they might ever see rates low enough for them to meet affordability criteria, let alone the rates enjoyed by many over the last decade or so.
It is, of course, a little too early to see the BBR cut reflected in the price of the higher LTV mortgages I track every month, based on the average home as priced by the Nationwide Building Society. But, I have an expectation that, at this point, next month we’ll have seen some significant shifts in the Best Buy tables, particularly as many lenders will be wanting to secure business which will complete before the end of 2024.
The latest average house price figure from Nationwide is £266,334, up 0.3% last month, and 2.1% annually, which potentially suggests the period of subdued house prices is now over. We shall see.
At that price level, and with a 5% deposit, we’ve actually seen a slight drop in product numbers over the course of the last month, down from 246 last month to 237 in early August. This number is split between 204 fixes and 33 trackers/discounts, and we should anticipate these latter group of products will benefit from that 25 basis point cut in BBR nigh-on immediately.
Looking at the ‘Best Buy’ options that come up this month, as mentioned it’s too early to see any significant differential with last month. For instance, Progressive’s Northern Ireland-only 4.99% five-year fix remains top, followed by Skipton’s 5.1% and Newbury’s 5.19%.
Lloyds have a 5.54% two-year fix, West Brom a 5.49% three-year fix, and Yorkshire a 5.64% 10-year fix, although as I mentioned last month, I would urge advisers to also consider the newer longer-term, fixed-rate mortgage lenders that have recently entered the sector, if the client wants a longer-term fix.
In the discount/tracker space, the Loughborough’s three-year discount remains at 5.15%, the Vernon Building Society’s lifetime discount also remains at 5.4%, while the Newbury Building Society offers a three-year discount at 5.44%. Exactly the same as a month ago, but likely to have changed perhaps by the time you read this.
Indeed, I suspect we might see a great deal of movement and activity from lenders off the back of this announcement, and given – anecdotally at least – I’m hearing June and July hardly set the world alight in terms of business and activity levels.
Let’s hope this is simply the first step in a move towards a more accessible and less costly rate normality in the months/years ahead, and that lenders continue to look at their high LTV product options, particularly as first-time buyers often struggle to make their housing dreams a reality without competitively-priced options in this sector.
