Mortgage brokers debate what the Monetary Policy Committee will do
In this lingering, seasonal lull, as winter prepares to make a retreat and spring waits in the wings, mortgage brokers could be forgiven for holding out a little hope that the Bank of England’s Monetary Policy Committee will deliver an injection of optimism and - dare we say - excitement into the market by confirming a base rate decrease.
It will meet tomorrow to determine whether this will indeed be their first rate cut of 2025, and certainly speculation is bubbling that one is on the cards. Nothing is ever certain, of course. At its last meeting in December, the committee voted six to three in favour of holding the base rate at 4.75%.
Matt Towe (pictured left), CEO at brokerage Meet Margo, is confident though that a cut will come. "We’re expecting a 0.25% rate cut this week, a move that comes on the back of lenders predicting a gradual decline in rates,” he told Mortgage Introducer. “Santander has set its sights on 3.75% by the end of 2025, while HSBC is forecasting 2.75%. But for these targets to come to fruition, the Bank of England will need to implement consistent rate cuts. The challenge for the Bank is striking the right balance - keeping inflation under control while also fostering economic growth. It’s a tricky path - too slow, and borrowing remains expensive; too fast, and inflation could increase again.”
For homeowners with tracker mortgages, a rate cut would, of course, bring immediate relief, reducing monthly repayments, however, for most borrowers, the impact may not be felt immediately on fixed mortgage rates, as lenders have already priced in expected cuts through swap rates, Towe pointed out.
David Hollingworth (pictured second left), associate director at L&C Mortgages, shares Towe’s optimism for a cut. “It will be a surprise if the MPC doesn’t add apply another reduction to the base rate this week, adding another quarter point cut to the two it made last year,” Hollingworth suggested. “There’s been an almost constant stream of speculation over whether the Bank would have the ability to cut rates as sharply this year as had been hoped. That was driven by concerns that inflation would hold back the ability to loosen policy and cut rates.”
Fixed rates edged higher at the end of last year and into the early stage of 2025, Hollingworth noted, added to by the turbulence in the gilt market. Sentiment can shift quickly - with better than expected inflation data last month, swaps have eased back again which should give some room for lenders to improve rates again.
“Lenders have continued to compete hard and we’re already seeing some cuts come through, with a growing number of lenders including Barclays, Accord, Coventry and Halifax announcing some reductions this week,” Hollingworth said. “There’s still hope for a gradual, steady fall in interest rates as the year progresses which should in turn bring mortgage rates down. That won’t see a return to the ultra-lows of what is rapidly becoming yesteryear, but should help to shore up consumer confidence that they can expect the general direction of travel for rates to be down.”
Hollingworth anticipates more activity coming back into the market, from those who may have put off a move due to the volatility of the last couple of years. “Of course, there’s enough uncertainty across the globe to mean there’s no room for complacency,” he added.
Meanwhile, Amar Dhanota (pictured centre), specialist mortgage adviser at London-FS is sticking her neck out further, suggesting that a bigger rate cut by the MPC is in order.
“Anticipation is of a base rate drop of 0.25%, but they should look to bring it down, in my opinion, by 0.5% which will stimulate the mortgage market and bring a much needed positive outlook to the market,” Dhanota observed. “Any reduction will, of course, help take some pressure away from people on tracker and lender variable rates.”
Read more: What do mortgage clients want from brokers?
How would a BoE base rate cut boost market confidence?
Richard Campo (pictured second from right), head of growth at mortgage and protection broker Heron Financial, is urging the Bank of England to cut rates by a further 0.25%.
“Money markets are also tipping a cut, albeit not with a lot of confidence,” he said. “Funnily enough, that is exactly why I think the BoE should cut rates early this year, as it will build more confidence in the property and mortgage markets. It could even give the whole UK economy a positive boost as good news has been in short supply so far under this Labour government.
“We can’t forget that we are still recovering from a bout of hyper-inflation through 2022-2023, which has left the average UK household around 20% worse off today versus 2021, as wages haven’t caught up yet. Starting to bring down the borrowing costs for households and business is very much needed.”
He added: “An early cut could shift sentiment, so if we feel rates will fall faster than currently priced in, fixed rate mortgages will get cheaper which will help all the clients either buying or refinancing this year. 2025 is widely expected to be the biggest year of re-mortgaging on record so the BoE helping squeezed households can only be a good thing.”
For broker Joela Jenvey (pictured right), from Nurture FS, though, the BoE is expected to hold the base rate steady at 4.75%.
“Inflation remains sticky, and the Bank is likely to prioritise price stability over immediate rate cuts,” Jenvey commented. “Patience is key. While inflation is coming down, a rate cut now could risk reigniting inflation. The Bank is likely to stay cautious for now, particularly with the upcoming stamp duty threshold adjustments in April. Any decisions on rate cuts may only come if inflation continues to drop and economic conditions show a clearer improvement. If the Bank base rate is reduced and swaps remain elevated, we could see a surge in demand for tracker products and two-year fixed rates, especially as clients moving away from post mini-budget products, continue to benefit from lower monthly payments.”
Jenvey believes that this could result in increased refinancing activity and stronger consumer engagement, as borrowers turn to qualified brokers for expert advice in an unpredictable market. “This presents a valuable opportunity to strengthen pipelines ahead of the anticipated spring market rise in housing stock,” she said.
