The Bank of England is yet to see the inflation data following the Labour government’s autumn Budget. However, due to the significant austerity measures imposed on businesses via increased taxes, the Bank of England will be concerned that demand in the UK’s economy will sharply fall. If the inflation rate continues to fall, rather than increase to their 2% inflation rate target, we may see a further 0.25% base rate cut in the MPC’s next meeting.
The base rate cut may stabilise and encourage a reducing swap rate trend, influencing lenders’ costs of funding.
We have seen the gap between two- and five-year fixed rate money lessen over the last three weeks. This combined with home mover and remortgage customers opting for shorter term fixed rates could mean we will see more competitive pricing across shorter fixed-rate mortgages, and lenders beginning to reprice down again, providing much-needed relief for borrowers. This could benefit those on the cusp of remortgaging or first-time buyers or clients with existing submitted applications. While rates may not return to the historically low levels of previous years, this is certainly a step in the right direction for affordability and stability in the housing market.
For the mortgage market it will only affect those on trackers so this is not a big win for mortgage holders on fixed rates as this would have already been priced in via swap rates. What should be noted is that two lenders, Santander and Virgin Money, are not reducing their existing borrower tracker payments until December 28 and January 1 respectively, around eight weeks after the event. During the bank base rate increases, Santander were increasing payments the following month.”
HOW ARE BORROWERS RESPONDING TO MARKET MOVEMENT?
“Data shows that falling rates have already impacted borrower preference. Last month, over half - 54% - of borrowers opted for a five-year fixed rate, an increase of 11% versus the same period last year, indicating a change in customer mindset.
We could see swap rates and, consequently, mortgage rates fall, subject to markets settling further following the budget and the outcome of the US election. It will be interesting to look again at this after the dust has settled following the budget and the outcome of the US election, and their combined impact on mortgage pricing.
We’ll be interested to read the Bank’s latest quarterly economic forecast to see what effect they think that the increased
government borrowing that Chancellor Reeves announced in the Autumn Budget will have on future rate cuts. Moving forward, we’ll probably see fewer cuts than previously expected due to the extra inflationary pressures, rises to the national living wage and employers’ national insurance.”
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Always seek advice from a professionally qualified independent mortgage adviser or broker.
Can I take this opportunity to wish you all A Very Merry Christmas and A Happy New Year
For further information please contact Peter Hunt on: 0121 503 0961
www.moneywatchfinance.com
Peter is one of the panel experts for the Grand Designs live TV show and has been recognised in the Times Vouched For guide to the UK’s top rated financial advisers every year since 2019
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THE MIDLANDS PROPERT Y GUIDE MONE YWATCH F INANCE
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