The BoE base rate cut presents a quandary for brokers' clients
While the big question last week was whether Trump or Harris would triumph, for the mortgage market there’s now another, more pressing issue troubling hearts and minds – whether to ‘stick or twist’ following the Bank of England’s further base rate cut to 4.75%.
Borrowers are facing a dilemma of whether to remain on their current fixed product, take advantage of rates which have fallen to more palatable levels in recent months, or to hold out for a better deal, as they potentially come down further. It’s enough to make the hesitant want to ‘phone a friend’.
Falling product rates had already impacted customer behaviour ahead of last week’s reduction, according to Mortgage Advice Bureau, which believes this latest drop is moving the dial back again in favour of borrowers. Its latest data shows that, in October, 54% opted for a five-year fixed rate, an increase of 11% on 12 months ago.
Whether this change in customer mindset persists remains to be seen, and for borrowers it’s no easy decision, given that some fixed rates have edged up again in the aftermath of Rachel Reeves’ much dissected budget. With so much at stake, and with a continuing uncertainty, some may feel that it’s as easily resolved on the flip of a coin as it is by bothering a broker, but the wise will exercise caution and seek professional advice.
“It's completely understandable to feel apprehensive, especially when some mortgage lenders have increased their rates after a period of decline,” observed John Fraser-Tucker (pictured left), head of mortgages at broker Mojo Mortgages, acknowledging the worries of many existing borrowers and aspiring first-time buyers.
The base rate reduction could prove influential, he believes. “We’re optimistic that this change will encourage mortgage lenders, who have recently raised their rates, to rethink their pricing strategies and lower their rates in the coming weeks,” he said.
How will borrowers respond?
Jeremy Leaf (pictured centre), north London estate agent and a former RICS residential chairman, considers that a base rate below 5% for the first time in almost 18 months may spur the more cautious into action.
“The reduction will certainly give a kick to those sitting on the fence who are undecided about whether to stick or twist, coming on top of other recent positive housing market data,” said Leaf. “First-time buyers especially are looking to gain not just properties from investors withdrawing from transactions due to their higher stamp duty liability announced in the Budget but their own obligation to pay more of the tax from next April.”
Mark Harris (pictured right), chief executive of mortgage broker SPF Private Clients, believes the latest base rate cut will buoy the mood of borrowers.
“Those on base-rate trackers and variable-rate mortgages should see their monthly payments fall, and those savings will be gratefully welcomed by hard-pressed borrowers,” noted Harris, adding that the pace of ongoing rate reductions could not be predicted. “If you cannot afford to be wrong - that is, if rates were to rise you would struggle to pay the mortgage - then a fixed-rate mortgage usually makes sense,” he said.
Kevin Roberts, managing director of Legal & General Mortgage Services meanwhile thinks that the Bank of England’s decision should reassure the doubters that rates are on a downward trend.
“The mortgage market has really opened up since the Bank of England announced its first cut in August,” Roberts said, “with borrowers finding dynamic and cheaper products in front of them.”
Read more: Revealed – impact of Stamp Duty relief cut on first-time buyers
Should the BoE go further?
You can’t please all of the people all of the time, of course, and some want the Monetary Policy Committee to go further still, when it next meets on December 19, with the potential confidence it could bring to the market.
“The MPC needs to persevere with an aggressive rate cut programme,” urged Jamie Pritchard, managing director of sales at residential lender Glenhawk. “Given the current macroeconomic trajectory, the target should be a minimum of three further rate cuts by next summer, bringing the base rate down to 3.75%. With wage growth having cooled more than expected and the very real possibility of deflation kicking in, the MPC has the means to give the economy the support it needs.”
