After a considerable period of rate rises and holds, you would think that two Bank Base Rate (BBR) cuts within a few months, would be greeted with the same degree of unbridled enthusiasm, wouldn’t you?
Certainly, that was the general feeling after the August Monetary Policy Committee (MPC) decision to cut BBR to 5%, however, I’m pretty sure we’ve seen nothing like the same reaction to this month’s cut to 4.75%.
Instead, what has followed has been a flurry of articles and commentary telling borrowers not to expect much in the way of mortgage product cuts following this decision.
Arming clients with the right information
That is likely to be somewhat confusing to all types of borrowers, but particularly first-time buyers who might have been waiting some time to hear about rate cuts only to now be told that this is actually unlikely to move the dial very much.
Explaining swap rates – specifically rises in the wake of the Budget – and how this impacts on mortgage product pricing, plus a new prevailing belief that BBR might not fall as quickly as previously anticipated, is probably a significant part of an adviser’s job.
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You will no doubt also be called upon to highlight that product rates have not suddenly shifted down by 25 basis points as a result of the MPC’s decision. Actually, the direction of travel in recent weeks has been an increase in mortgage rates.
Of course, tracker and discount mortgages and the like should benefit from the cut, and it will be interesting to review in the coming weeks how competitive these products look, particularly against two-year fixed rates.
Seeking competitive rates
I recently reviewed high loan to value (LTV) product rates available to first-timers – prior to the MPC meeting – and it was instructive to see that a number of ‘best buy’ trackers and discounts, albeit generally three-year deals, were now more competitive than their two-year fixed rate counterparts.
Now, with the BBR cut, they are likely to seem even more attractive compared to shorter-term 95% LTV fixes. If you are thinking that BBR will continue to drop, albeit not as quickly as we might have thought a few months ago, then these variable rates might become ever more popular.
The caveat being, of course, that they are fewer in number with many lenders not even offering discounts, compared to the much larger number of fixed rates available at high LTVs.
Less than perfect first-time buyer conditions
It makes for an interesting time for first-time buyers and their advisers, especially when it might have seemed the tide was turning in their direction, with the government’s decision to hit landlords with a further increase to the stamp duty surcharge, presumably anticipating this would open up more supply for them.
But, of course, there is always something else to consider which may not be seen as so positive. Not least because the stamp duty thresholds will be shifting from 1 April next year for first-time buyers and, as a result, they will have to pay more tax when purchasing.
Will this mean a significant increase in first-time buyers wanting to complete before this deadline? Probably. But again we have to think about whether they can meet mortgage affordability, and their ability to complete in three to four months, when the average time for completion is more like five to six.
Restrained enthusiasm
Overall, it’s therefore a mixed picture, and the muted reaction to the BBR cut is perhaps indicative of this. The Budget certainly shifted swaps in the wrong direction and, even with the cut, they are still not down to where they were prior to Rachel Reeves’ announcement at the Dispatch Box.
At least, not at the time of writing.
The big question of course is whether next month, the MPC, feel they have not got the ‘value’ out of the BBR cut they would normally anticipate because it has been somewhat overwhelmed by the Budget. If it does, then perhaps we may get another cut before the end of the year.
Although at the same time this was not the messaging coming out from the governor.
If it all sounds rather complex and convoluted to us, how must it feel to those who have never been through this process before?
Advisers are certainly going to need to earn their corn with their first-time buyer clients in the weeks to come, covering off all mortgage and income protection needs, as we all try to make sense of the shifting sands of our marketplace.
