After this month’s MPC meeting and the decision to hold Bank Base Rate (BBR) at 5.25% I caught an interview between the Governor of the Bank of England, Andrew Bailey, and ITV’s Robert Peston.
Always an interviewer with a tendency towards the esoteric, this time Peston appeared to believe his job was simply to ask Bailey repeatedly when there would be a rate cut.
Unsurprisingly, particularly after the Committee had just voted to hold rates on that very day, – Bailey wouldn’t be drawn on this point at all, answering that we may be moving closer to a rate cut, but he couldn’t put a timetable on that decision and certainly wouldn’t call the date it might happen.
On watching this exchange, I couldn’t have told you with any degree of certainty when the Bank might choose to act and given the recent inflation figures, the market reaction, plus the fact that we’re in full General Election mode for the next six weeks, my view has solidified on this.
The markets appear to have moved even further towards a first rate cut in August or September, not June; and I wonder now whether Peston would stick to his appraisal after the interview with Bailey that he was almost 100% certainty that the MPC would announce a cut at next month’s meeting on the 20th June?
Perhaps Bailey had tipped Peston the wink on this ‘behind the scenes’ because, from my perspective and the many views of economists and commentators I have read – not forgetting the swap markets that tend to signal what and when we might get rate action – there is no strong suggestion of action in June, although the fact the voting figures moved from 8-1 to 7-2 in favour of a cut does perhaps signal a direction of travel.
What now makes this even more interesting is that the next MPC decision will be just a couple of weeks before the General Election vote. Whatever the Bank decides to do will be seen as a very ‘political’ decision. Perhaps, in those circumstances, it might decide that doing nothing would be the better option?
Indeed, if we are going to remove all political aspects out of this, then the last MPC summary should still be our go-to source of what is likely to happen next. It accompanies the BBR decision and details the key judgements it has taken, the risks, and the economic conditions – both domestic and international – essentially, everything that goes into making a rate decision.
It is always worth a read – you can find it here – simply because it provides that background information, but it also highlights its view on where the mortgage market is at, what appetite lenders have, credit conditions, activity levels, and the economic outlook. All relevant for both advisers and their customers reviewing a mortgage and what may or may not be coming over the horizon in the future.
On that very point, prior to the MPC meeting in May, we saw a significant number of mortgage lenders inching rates up, however in the weeks since there have been a number making cuts. The Bank does make the point that overall, we still have product rates well below the levels we saw in the middle of 2023.
The other point to be made is around market activity, its potential, and the position large numbers of borrowers will find themselves in. At the start of the year, UK Finance outlined around 1.6 million fixed-rate mortgages were due to mature throughout 2024.
At the time of writing, we have just over seven months left of the year, and a huge chunk of that business is still to mature. That is a huge market in anyone’s terms, and obviously doesn’t even include those who have non-fixed-rate mortgages, those on SVRs, those who are new to the market like first-time buyers, or those who are going to purchase.
Indeed, after a spell when we did see purchase business back off quite considerably, that tide has also been turning over the course of the last few months. Our own Stonebridge purchase/remortgage mix had been down at 25/75 in some months last year, but we are now working at well over 30% purchase, and our working assumption is that we will get to 40/60 over the course of 2024/25.
That is significant for advisers in terms of income levels, and in the remortgage space, if we do see rates fall in the future, that is also significant as there is more chance of borrowers meeting affordability to be able to remortgage away from their existing lender rather than having to opt for the PT, which has clearly been the case for many borrowers over the course of the last 12-18 months.
Other positives to come out of the MPC Summary report obviously focus on inflation continuing to track closer to target – further boosted by April’s figures announced this month even if the drop was less than anticipated, lenders reporting an improvement in the availability of secured lending to households, and the UK is now out of recession with GDP up 0.6% between January and March, the fastest growth for two years.
Added together, and with the hint of rate cuts at some point, although perhaps not next month, it is possible to see a more positive mortgage market for advisory firms and, coupled with a fully-diversified approach to each customer’s needs, the potential for significant year-on-year income growth as a result of purchase demand improving, and the need for those maturing borrowers to do something sooner rather than later.
We now know the date of the General Election, but even if we do not know the exact date of any future cut to BBR, we do not actually need to know it to give the right advice and achieve the best outcomes for customers.
Hopefully, and once the political machinations of the next six weeks are over, as we progress through the rest of the year, we’ll see greater levels of both purchase and remortgage business, and those green shoots that are showing begin to flourish even further, with income levels benefiting greatly from that increase in activity.
Rob Clifford is chief executive of Stonebridge
