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BBR cuts should bring more competitive mortgage pricing.

Last month’s decision by the Monetary Policy Committee (MPC) to hold Bank Base Rate (BBR) for the fifth time in a row was no surprise. The MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25% at its meeting on 20th March 2024 where the ‘one’ was voting for a cut not a rise. At the February meeting, there were still two members voting for a rise, so this has changed a lot in recent weeks.

Every meeting which does not raise rates and which coincides with falling inflation, technically brings us closer to a BBR cut, and what we’ve seen since Autumn last year, is a split vote, with some members voting for increases, others for cuts, but the majority have favoured a hold.

There could be further shifts in the weeks between now and the next meeting which takes place on the 9th May. However, if we are to believe most of the economic forecasters, then we’re likely to see inflation continuing to fall.

If this doesn’t quite feel like a ‘big deal’ for mortgage market stakeholders right now I think we are going to move into ‘big deal’ territory over the next couple of months.

So, will we see a cut to BBR in May? Perhaps, but several members will need to have their minds changed quite substantively in order to vote for a cut. However, we could well see more than one member voting for a cut, which would open the door for a BBR drop at the 20th June meeting, and potentially one or two further cuts later in the year.

Certainly swap rates are increasingly moving in this direction. SONIA swap levels currently suggest there will be two quarter point rate cuts over the next year, but my view is this will shift further downwards particularly when we start to see some momentum in BBR cuts.

As I write, all SONIA swap rates – from two-year to 30-year – are down on where they were at this time a couple of months ago and they’re inching down towards where they were at this time last year. That is important because, as we know, we saw very high inflation in the Spring/Summer of 2023 and this led once again to big jumps in swaps, considerable movement in mortgage product rates, the pulling of many products and a further reshifting of the market.

A year on, the likelihood of this seems distant, and if we can keep inflation in the 2-3% area, then not only do we have the conditions for BBR cuts, but then we also have the conditions for what should hopefully be more competitive mortgage pricing.

For residential, that probably means rates going back to below 4%, and this is likely to act as a considerable kick-start to activity. In our own buy-to-let sector, this should mean rates going below 5%, which often provides that affordability cushion landlords need and also acts as a demand driver within our mortgage space.

The closer we get to the next MPC meeting, the greater chance we’ll see swaps beginning to inch down again. There is of course no April meeting, but inflation figures will be released on the 17th of the month and again if they do show a further drop towards that target figure, then one suspects a growing narrative will be driven around what the MPC might be willing to do.

As Bank of England Governor, Andrew Bailey, has already pointed out, there is no rule that says BBR can’t be cut if inflation isn’t at target, so they could act in May if CPI still begins with a three. I think they are more likely to wait and see if we have two months of falling inflation which would surely give them the ammunition to act in June.

Overall, it’s a promising picture and one that advisers should be providing to their clients right across the board. Being ahead of any market-changing news could allow them to act fast and decisively, and certainly when it comes to the buy-to-let market, landlords are unlikely to be letting the grass grow under their feet if there is competitive finance to be had. Make sure you’re the adviser delivering it to them.

Steve Cox is, Chief Commercial Officer at Fleet Mortgages

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