Brokers on whether a base rate hold is the right decision
It was never going to be an edge of your seat moment as the mortgage industry awaited the latest decision from the Bank of England’s Monetary Policy Committee.
Sure enough, midday came and went yesterday with barely a flicker of the sector’s collective heartbeat in response to the Bank’s much anticipated announcement that it was maintaining the base rate at 4.5%.
Since August, it has very gradually lowered borrowing costs, enabling lenders to reduce some mortgage rates, but this time it barely surprised anyone by opting to keep rates unchanged, despite a 0.25% cut in February.
While many in the broker community will understand the delicate balancing act that the Bank faces in a still challenging economy, some feel that its caution is stifling activity in the mortgage market.
A disappointed Mark Harris (pictured left), the chief executive of mortgage broker SPF Private Clients, is urging The Bank of England to take decisive action, going forward.
“Another rate reduction would help boost the housing market and wider economy, particularly as the Stamp Duty concession comes to an end this month,” Harris said. “The Bank must be proactive - by acting sooner rather than later and introducing further rate reductions, the money markets will shift expectations and swap rates should fall, which in turn will mean cheaper mortgage rates for borrowers.”
Luther Yeates (pictured second from left), head of mortgages at Orton Financial, believes the Bank of England will, in time, have to loosen its grip on the market.
“The buy-to-let market is struggling significantly, as a higher interest rate environment fuels and increases the rental income required to qualify for a mortgage,” Yeates told Mortgage Introducer. “Areas in the south of England are particularly negatively impacted, as the property values and mortgages are generally larger. Rents increase and this is fuelling wage demands. The Bank of England reads this as inflation and is reluctant to trim rates. Eventually they need to relax their hold on the market.”
He added: “The market has increased income multiples, and increased maximum terms – a sticking plaster for the underlying problem. I don’t feel the system works as you have monetary policy running counter to fiscal policy. The only real winner is the lenders who are posting record profits, and entering the year with ambitious lending targets.”
John Phillips (pictured centre), CEO of Just Mortgages, is focused on base rate reductions happening before too long.
“Future cuts couldn’t come soon enough in a mortgage and property market that is still battling clear affordability challenges, not helped by the upcoming change to Stamp Duty thresholds,” Phillips commented. “On top, we prepare for any potential surprises that may come in the Spring Statement next week. We continue to hold our breath that future cuts are indeed coming, although like our US counterparts, the pace and frequency depends entirely on the economic outlook at home and abroad, and inflation dynamics, which in the UK remains sticky and highly volatile.
“Thankfully, lenders continue to play their part to support borrowers and from our perspective, there is still appetite within the market with buyer registrations, valuation requests and mortgage appointment numbers all remaining consistent. It’s encouraging to see there is still a clear demand for advice and advisers will continue to play a pivotal role as clients try to navigate an ever-changing market landscape.”
Read more: 'The Bank of England may not cut the base rate until August'
Why is the Bank of England’s cautious approach justified?
The decision to hold comes against a backdrop of global uncertainty, of course, with President Donald Trump’s unpredictable trade policies adding fresh risks to the economic outlook. Thomas Boughton (pictured second from right), founder of Artillium Finance Partners, supports the Bank of England’s approach.
“The prevailing market trend is downwards, whether you're looking at fixed or tracker options, yet still fragile and I think the Bank of England moving cautiously is a good thing,” Boughton said. “The last thing we and our clients want is for sudden movements in the market to send things out of control again. So, I think cautious optimism with a 'reduce and pause' strategy is what we're currently witnessing. We have seen over recent years that the industry needs this reliability, predictability and stability, or it can all go wrong very quickly.”
David Hollingworth (pictured right), associate director at L&C Mortgages, is pragmatic in response to the latest Monetary Policy Committee decision.
“The Bank of England has consistently suggested that interest rates can fall further, adding to the three cuts since last summer,” Hollingworth noted. “Consequently, fixed rates have already priced in further reductions to the base rate, but this is still expected to be a gradual process. Unless there is a marked shift in the Bank’s messaging, mortgage rates look set to should remain relatively stable in the near term. Lenders remain highly competitive and continue to make small adjustments to improve rates wherever they possibly can. That trend looks likely to continue so it’s unlikely to result in any major drops in rates."
