It is suspected that the first base rate cut will come this summer, possibly at the next meeting on 1 August.
Even though mortgage rates have already been coming down in recent weeks, some borrowers might prefer to wait for the Bank of England’s movement, believing this will encourage more reductions.
So, this week, Mortgage Solutions is asking: Have any clients explicitly said they are waiting for mortgage rates to fall?
We currently have a real mixed bag. I have some clients, primarily first-time buyers, who are desperate to get going and, while they know rates were lower over the years, they haven’t ever experienced it.
The priority seems to be: “Can we just have our own space and pay less than the equivalent for rent, so we feel like we are getting some sort of value?” My answer is yes, depending on your affordability.
Other clients, primarily homemovers, are holding out for rates to fall. One couple particularly springs to mind, both on good incomes, can buy or borrow above the “norm”, have offered on many properties over the past four months but who caveat this with “we do not wish to apply for a mortgage at this time, we have an application in principle to confirm we can proceed, but we are hoping for rates to reduce”. This naturally hasn’t gone down too well over the months, but they now have had a successful offer.
Their case is extreme, as they are happy to sell their property and move out to rent if needed, so they are not forced into buying something with a rate they may regret in the future. But for the right property, they would be happy to move now and swallow the increases.
They are on a variable rate currently, which means they have the flexibility to sell and move without an early repayment charge (ERC), but also that they spend more each month. On the flip side, their new mortgage will probably cost more than this, so it’s getting them used to paying slightly more.
Naturally, I’ve been asked when rates might fall.
“If I had a penny…” is my usual response, but really, it’s down to my clients’ circumstances. Sure, we would all love to wait for rates to come down, but is that practical? Can you afford to wait on a variable? If you take a punt on a two-year deal and rates are worse in two years, how will that impact your future?
Just some of the questions an experienced adviser should be querying when getting to know their clients.
Faye Richards, director and mortgage consultant at Faye Richards Private Finance
As soon as the election was announced, there was a noticeable drop in new enquiries. I found buyers became very hesitant and wanted to wait and see how the election may impact the market and interest rates. Some buyers were even hopeful of new buying incentives being offered such as further reduced stamp duty.
Since the election, things have picked back up, with first-time buyers and homemovers wanting to get on with things. Although, I still feel many clients are waiting to see what happens with the market and are perhaps just tentatively looking for properties.
Many first-time buyers being new to the market don’t know any difference and accept the current rates for what they are. Overall, most buyers and remortgagors are taking two-year fixed deals with the optimism rates will drop – even slightly – within this time period.
Tracker mortgages are being taken by the most daring and tend to be experienced buyers and owners who feel they have an insight into the market and/or have done a lot of research.
Many clients have asked the million-dollar question of when interest rates will drop. The general consensus is yes, they may come down, but it will be slow and gradual.
To sit and wait on the standard variable rate (SVR) is not something many of my clients have opted for. Instead, they prefer to have certainty of payments and have given up on waiting for a rate drop, instead choosing a two-year deal, hoping for better times ahead.
The remortgage process has changed and become a lot more onerous for brokers, with multiple conversations and changes to a mortgage product throughout the client’s six-month remortgage window.
I have clients tracking rates themselves, sometimes sending through updates and asking that we update their application. Rate savings are small but every little helps. We always review options up until the final possible stage, even sometimes cancelling off a new lender remortgage offer in favour of a last-minute change made by the client’s existing lender rate switch range.
Jonathan Clark, mortgage and protection adviser at Fairstone Wealth Management
The prospect of interest rates reducing – even slightly – in the near future makes things challenging for lenders, brokers and, most importantly, clients.
Naturally, everyone borrowing money wants to do so at the best – i.e., lowest possible – rate, and so a typical response is to “hang on” until the last possible minute and see if the terms you’ve been offered can be improved upon. For purchasers, this means regularly reviewing their product to take advantage of any reductions.
So far, I’ve seen no evidence of them actively delaying or postponing their purchase. Of course, some may be waiting for rates to drop before they even start looking for a property, but when they invariably ask for my perspective on this, I tell them that history tells us that when rates cool, prices are inclined to rise – so this may not pay dividends.
Those with existing mortgages are perhaps more sensitive to current rates, as many will be coming off rates of around 2% and seeing them at least double.
Like most brokers, we would contact our existing customers around six months prior to their current rate expiring and encourage them to book a new deal soon, as this guards against possible future increases even if this is looking increasingly unlikely, while still offering them the option to jump across to any better or lower rates before their switch date.
A few of my clients have opted for two-year fixed rates, some even for tracker mortgages – preferably one with no tie-ins – but the majority still opt for five-year fixed rates of around 4.5%.
Some of us – me included – remember rates of 15% in the late 1980s, so 4.5% really doesn’t look that bad in comparison.
Public perception appears to be that rates will drop significantly and quickly, but most in the industry feel it is more likely that this will be a more gradual process.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
