As always, the inflation figures followed by the MPC meeting and its resultant Bank Base Rate (BBR) vote, provides us with plenty to delve into, albeit on this occasion without any suggestion of dial-moving changes in terms of housing activity. At least not yet.
That being said, certainly a drop in inflation, followed by a tangible move in voting patterns from MPC members, does appear to show a much clearer path to a first Bank Base Rate cut, and potentially the much-anticipated increase in consumer confidence that such a move might deliver.
While the inflation drop to 3.4% was perhaps more than expected, it still felt like a big step for the MPC to make to then follow that up with a BBR cut, and so it proved, however it’s clear that the noises coming out of the Bank of England – especially with the suggestion that inflation could be at its 2% target in the next few months –were much more ‘cut-friendly’ shall we say.
Indeed, the voting patterns of MPC members appear to prove this. Lest we forget that in February, two members voted for an increase in BBR, while one voted for a cut then, and the other six voted to keep the status quo.
This month that had moved quite noticeably, with the two members who had previously thought a further rise was necessary now falling into the ‘hold’ camp, while we still had one member looking for that early cut.
Now, on the surface, that might not seem like a big deal, but the fact this change of heart had happened within six weeks or so is definitely worthy of note, and with the Governor, Andrew Bailey, using the MPC meeting to talk up the prospects of a rate cut in the not too distant future, I think we move much closer to this. Especially if inflation does get closer and closer to target.
What should perhaps also be factored into this situation, is that we now wait almost two months before the next MPC meeting, which will not take place until the 9th May.
Interestingly, this is after the Local Elections, and what price a rate cut then which might foreseeably help the Conservative government distract from what many political commentators believe will be a damaging set of results?
Of course the Bank is independent of this, but as mentioned, if we have seen further falls in inflation, and with Bailey saying explicitly that the MPC doesn’t necessarily need to see it at 2% before it cuts, then we could have that first drop in May. Or perhaps June.
Certainly, the markets are anticipating two to three cuts in BBR this year, and while swaps have been up and down lately, when we get tangible proof of that, then the mortgage market should see the benefits in terms of product pricing, albeit with the caveat that we shouldn’t expect big drops in mortgage rates.
This, of course, is a market that thrives on confidence and, dare I say it, lower rates. We all saw the impact of this in December/January and February when lenders were able to cut pricing, and this acted as a catalyst for greater demand in both the purchase and remortgage spaces.
In lieu of anything game-changing from the Budget, it is likely to be rates that do most of the heavy-lifting within the mortgage market over the course of 2024, and from that perspective, advisers should not be backward in coming forward in marketing these to both new and existing clients.
Few mortgage borrowers are uninterested in the cost of their mortgage, especially if they are coming to the end of the deal, and they are anticipating a big increase in monthly costs. If you’re able to find them a pathway to less of an increase, all well and good, but borrowers need to be told about this and they need to know that their best chance of this is via you, not direct.
As we know the PT route might be right for some borrowers – as we saw last year it might be the only option they have – but increasingly, and with rates coming off last year’s highs, a remortgage might now be more suitable. And, with those remortgages, comes opportunities that simply do not exist in the PT space for advisers, not least ancillary sales generated by other customer needs including protection, GI, conveyancing, and the like.
In that sense, I would make the most of market chatter. Clearly, we’ve not seen BBR cuts yet, but they look inevitable. Get ahead of this in the mind of your clients and make sure they know exactly where they need to go in order to make the most of what should be more competitive options for them in the months to come.
Keith Young is managing director of Broker Conveyancing