July was supposed to be something of a ‘respite’ month with no Bank of England Monetary Policy Committee (MPC) meeting taking place. However, the ‘noise’ around the sector, and the movements we continued to see in swaps, mean the sense of urgency and volatility is perhaps as high as it has been, certainly since the post-mini Budget fallout.
For advisers, there is a difficult line to tread here, not least because at the end of this month, firms must be Consumer Duty-ready.
We know a lot of resource, energy and cost is being drawn into doing this. However, the market is constantly shifting, with lenders continuing to withdraw products and rates at late notice, which is adding not just to advisory workloads, but also those within lenders themselves.
As we write, there is no doubt that many lenders are eyeing up what is happening to swaps right now and determining where they go from here – undoubtedly up in terms of rates – plus one wonders what the recent meetings between the lending community and Chancellor in terms of the apparent disconnect between savings and mortgage rates, is likely to do to pricing.
Whatever it is, it’s not pretty, however, our fate may effectively be sealed by the next set of inflation figures and their direction of travel. To say that we will be watching the next set of data – due on the 19 July – with some interest, is again a huge understatement. Although, you do wonder if further rate rises are already baked in regardless of what they reveal.
Getting to grips with the market
If this all feels rather chaotic at the moment, then that’s exactly what it feels like to many of the mortgage clients we talk to. Of course, part of our job as advisers is making sense of the market and finding them the most suitable deal for their circumstances in this market.
We can’t predict what will happen next and shouldn’t think we need to.
Indeed, while inflation is the overriding focus for the Bank of England and the government right now, we also can’t help feeling that a set of inflation figures which show any sort of fall may present the Bank with an opportunity to press the pause button when it comes to the MPC’s next meeting and its decision on bank base rate (BBR).
Much like the Fed did recently, if inflation – and importantly, core inflation – is shown to have fallen month-on-month, then the Bank could decide not to increase BBR at all, perhaps citing these figures as an example that rises over the last year or so are starting to work.
A pause on rate rises?
There is an argument to suggest that after missing a trick by not raising quickly enough at the start of this inflationary period, it might overegg the pudding by raising too much without allowing those other rises to have an impact. Especially, given our rate environment now is so different from what the UK public have become accustomed to over the last decade or so.
This could be a ‘common sense’ approach. Not suggesting that further rate rises won’t be coming during the rest of 2023 but opting for a ‘wait and see’ attitude at least for a month or two, to see whether the anticipated drops in inflation do start to materialise.
Now, of course, whether the Bank MPC members believe this is the right route to take is another matter entirely. In the meantime, we’ll continue to have predictions of a 6.25 per cent BBR by the end of the year, and we’ll see headlines referring to seven per cent mortgage rates over the same timescale.
Hardly likely to engender any type of confidence from either existing borrowers or those still looking to get on the ladder.
This feels like a really pivotal moment for the mortgage market, not just in the context of the here and now but also for the rest of the year and into 2024. Lest we forget that many existing borrowers due to come to the end of their deals in six months’ time are being advised now on what is achievable, and will be being presented with product transfer offers by their lenders in the weeks ahead.
As advisers, that fact is not being lost on any of us. It would be nice to think we have people in charge who are also taking this into account.
