Of course, we all recognise the disconnect between actual mortgage product rates and what might be happening with bank base rate (BBR) and swaps, but they are clearly linked. And we, thank goodness, appear to be moving away from the apocalyptic scenarios being suggested during the Liz Truss/Kwasi Kwarteng period.
Certainly, when it comes to where BBR might be in 12 months’ time, we’ve already seen a sizeable reduction in what the markets now believe, and even with the 75 basis points rise earlier this month, there appears to be a consensus forming that the Bank of England may not have to move much further over the course of the next year.
The Bank of England’s own expectation for inflation is that it is likely to fall fairly dramatically from the middle of next year, which should temper further base rate rises.
Milder outlook for the base rate
HSBC, earlier this month, predicted base rate might only have to be moved twice more in the months ahead – suggesting a further 0.5 per cent rise in December, followed by 0.25 per cent increase in February, which of course would take it to 3.75 per cent.
If this is the case, then we would have taken a sizeable step back from the precipice which was looming large in early Autumn, and if inflation does fall back sharply, there might even be a future in which BBR can be brought back down.
For a government which has a General Election on the horizon anytime from 2024 onwards, it would be a good optic for rates to be tracking downward again in the run-up to that vote.
For the mortgage market, I suspect there is a sharp intake of breath being collectively felt – of course, rates are still high compared to the last decade, and in certain product sectors, perhaps most notably two-year fixes, we have a very changed situation and much higher rates than any of us would like to see.
Cuts across the market
However, in recent weeks, lenders have been re-evaluating their product offerings and we’ve seen a number of cuts that I hope can be maintained over the weeks and months ahead.
Plus, of course, we are quickly coming up to the end of the year. Let’s make no bones about this, the vast majority of lenders will have had exceptional years in terms of business volumes and the profitability of the mortgages they have offered.
Clearly that level of business was unexpected for many and there is still a gap to be bridged in terms of the service standards advisers and their clients are having to deal with. It is to be hoped these are now being controlled and that lenders are putting in place the resource and investment required to deal with those high business levels.
We do not want to see lenders feeling the need to increase rates as a mechanism for dealing with demand as we have done this year. Plus, it has been interesting to see both the Bank of England and the Prime Minister ‘suggesting’ to lenders that they should be curbing rate rises not introducing further ones.
Overall, it should not be forgotten that 2023 is a new year. New targets to be hit being the key part of that, and I fully expect to see a much more competitive lending market as a result of this.
For those that have the time to wait for their mortgage finance, 2023 might look somewhat different to what the market has had to endure in recent weeks.
And praise be for that.
