Lenders have already priced in mortgage rate reductions, so further cuts to the base rate may not mean cheaper deals, Stuart Cheetham, CEO of MPowered Mortgages, said.
Speaking on the lender’s The Rate Stuff podcast, Cheetham said he was a “little surprised” that lenders had broken the 4% barrier and gone below that, because it was “punchy pricing” and below the swap rate.
As of 18 February, the two-year swap rate was 4.02%, while the five-year swap was 4.93%.
He added: “Those lenders are really looking to make sure the flow is coming in the door, to keep the lights on, to cover their cost base.”
Cheetham said it was a “positive news story” that would give the market confidence, even if it did not make a lot of money for lenders.
Host Jack Izzard noted that all Monetary Policy Committee (MPC) members voted to lower the base rate, with two opting for a greater reduction of 0.5%, suggesting more cuts in the future.
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Cheetham said there should be at least three base rate cuts this year, meaning two more were yet to come, adding: “Those two are coming, we just don’t know how quickly yet.”
Izzard asked when rates would fall below 3% and Cheetham said the sub-4% rates had already been priced in, as the two-year swap was currently around 400 basis points.
“Just because more base rates are coming doesn’t mean more mortgage rates will be coming down, because they’re already priced in,” he added.
Cheetham predicted that “we might actually go back above 4%” in the near future.
He said the base rate and average mortgage rates were currently in the same environment at around 4%, so for lower pricing to come in, there would need to be 12 more base rate reductions of around 0.25% for mortgage rates to fall to around 2%.
Cheetham suggested the new normal could be mortgage rates starting with a three.
Today, Santander announced it had pulled its sub-4% mortgage deal.
