"Falling rates increase consumer confidence even before they filter through to mortgage pricing, and the recent reductions are expected to boost activity in the mortgage market"
“There are known knowns, known unknowns and unknown unknowns”. Former US secretary of defence Donald Rumsfeld’s famous speech referred to the limitations of intelligence reports, but the statement could equally apply to the UK economy right now. The most important economic ‘known unknown’ for the mortgage industry relates to Bank of England Base Rate (BBR) movements.
In recent months, speculation over future BBR movements has been feverish and varied. February’s 0.25% decrease, to 4.5%, was widely anticipated and the consensus is for further cuts this year, but opinion is divided on how far rates will fall. The most conservative observers, such as the National Institute for Social and Economic Research, are expecting just one more reduction in 2025 to 4.25% by year end, while bullish global investment banks such as Goldman Sachs predict that BBR will reduce to 3.25% by next April. The reality is likely to sit somewhere in the middle.
Whatever the degree, falling rates increase consumer confidence even before they filter through to mortgage pricing, and the recent reductions are expected to boost activity in the mortgage market, prompting more buy-to-let and commercial investors to proceed with new projects. In fact, the Intermediary Mortgage Lenders’ Association predicts a 14% increase in buy-to-let business in 2025 as interest rates fall, supported by strong tenant demand and rising rents. And a notable trend in residential and buy-to-let is likely to be the resurgence of remortgaging as the lower interest rate environment improves overall affordability.
A record 1.8 million borrowers will be rolling off fixed rate deals in 2025. Many will have seen their equity grow in recent years. Some may be in a position to make overpayments. Some may need to rationalise a buy-to-let portfolio or change investment strategy. Others will be undecided whether to fix straight away or secure the best variable rate available to them. Many will be keen to have their broker scour the market for the best rates available to them, rather than being limited to the product transfers which have dominated the market for some time.
All of this is good news for brokers whose guidance will be required more than ever before, not just due to this rise in activity, but greater need for expertise in a market where uncertainties will remain. Rates are heading south, but we cannot know how quickly, and there may be blips along the way. In recent years, the money markets have become hyper-reactive to economic data and political surprises (and political surprises seem to occur on a daily basis, particularly since the highly vocal President Trump took office). As a result, swap rate volatility has become the norm. So, while the cost of borrowing is on a downward trajectory, we may see flurries of higher pricing at various points throughout the year.
Then again, in a highly competitive and dynamic environment, we are also likely to see at least some providers changing their lending strategy throughout the year in order to control the amount of business they attract in different sectors of the market. Understanding lender appetite will be key to placing cases efficiently, particularly in some of the specialist areas such as bridging, buy-to-let and the commercial lending world.
Keeping tabs on up-to-the minute changes in product criteria, rates and service levels across all areas of the market is a lot to ask of busy brokers working to do the best possible job for every client. Knowing where to turn for the best outcome can be particularly challenging in those more niche, specialist areas which may be more unfamiliar to a broker and/or require more complex solutions.
Fortunately, help is at hand for any broker who feels they don’t have the relevant experience or resources to find or arrange the best solution for a client with more complicated borrowing needs. Partnering with an expert ‘broker’s broker’ allows you to deliver the best outcomes for all of your customers, whether you simply want some help placing a customer or would rather refer the whole case on. In an economic environment which continues to be characterised by uncertainty, the reassurance an expert can provide is invaluable. Working with a trusted third party with long experience in the specialist market can give you and your client the reassurance that they will secure the most suitable finance for their needs. That’s a ‘known’ worth knowing.
