In a very true sense, mid-September delivered two shocks that could ultimately signal – we hope – something of a turnaround in terms of housing and mortgage market activity.
It is, of course, incredibly early days – I’m writing this the day after the MPC meeting so there’s no hint that anything has happened yet – but those two ‘shocks’ feel like they have provided something of a positive impetus, although who knows exactly what might transpire.
The first ‘shock’ was of course the latest inflation figures. Widely expected to show an increase, they actually fell, and so did core inflation, which I think I’m right in saying, very few economists and commentators were anticipating.
Those drops – even if it was a slight 0.1% in terms of the headline inflation figure – appear to have shifted the mood, certainly of a number of the Bank of England MPC members and therefore the next day we had a decision we had not seen for a very long time.
Namely, the MPC – admittedly by the tightest of votes – deciding 5-4 in favour of holding Bank Base Rate (BBR) at 5.25% rather than increasing it again.
I’m not sure how confident many of us would have been of that decision at the start of the month; in fact, right up until the result of the vote was announced, there would have been few market stakeholders who would have bet the mortgage on a ‘hold’ decision.
But, that’s what we got, and it feels like a step in the right direction, albeit a ‘baby step’. Holding rates when we have had multiple increases for close to two years, feels like a moment in itself and, even if we see future increases in the next few months, it still feels like a slowdown that is looking ever closer to a stop.
The next big question being asked is whether this, as seems likely, is a plateau that will be held for quite some time, or might we expect at some point in the not so near future a move back down that mountain with cuts to BBR?
I think I’ve answered my own question there because, despite this hold, all the noises coming out of MPC members are that this is likely to be the rate for many months to come. The talk has all been about ‘higher for longer’ and I see nothing, certainly in terms of big future inflation falls, that looks likely to get the various Committee members to a point where they might cut BBR in the short-term.
Lest we forget, the MPC’s inflation target is 2%, and you would certainly suggest that inflation may need to fall by 1/2% more at least from its current 6.7% level, before the Bank could think about cuts. Then again, there is much conjecture about whether a 2% target is even desirable or achievable, but when we as a country have been living with double-digit inflation for some time and it is still stubbornly high, then working towards 2% might be beneficial.
So, what does this mean for the mortgage market? Well, product rates have already been trending down – although not by a great deal – and this might provide some greater confidence in terms of where the peak is/was and what might follow and over what time scale.
Certainly, no one has had that confidence prior to now – some forecasts for BBR have often looked in the region of a 6%-plus peak, so you can understand why there has been a reticence around pricing and funding.
However, it’s also obvious that the market needs some boosting and it’s also obvious that high rates have a real dampening effect, particularly in the purchase space which is really bumping along the bottom at present.
Affordability has been stretched for so many borrowers over the last year or so that it’s been difficult for many to even get the finance they need, let alone come to terms with what it is going to cost them in terms of monthly payments. For those who would like to buy, they can’t fail to have been worried about this, and I suspect this has put many people off, not just from buying but also selling, given what is happening to house prices.
Overall therefore, I sense we are going to get a little boost over the last quarter of the year – it may not be anything to write home about compared to any sort of recent historical context. We are not talking about a pre-lockdown situation. But it should hopefully provide a little ray of light, and I suspect that lenders will also want to ensure they are filling up their pipelines over the next few months.
Product rates could come down further, and hopefully this will mean borrowers beating a hasty path to advisers’ doors where they can not only look after their mortgage needs but all others.
We have certainly needed some positivity after a very quiet August and an extremely challenging 2023; this has the potential to move us forward but just how far, remains to be seen.
Mark Snape is CEO of Broker Conveyancing