While there has been a slight drop in rates for various mortgage products in recent weeks, it’s clear lenders are not being driven purely by market conditions but by a need to stimulate business. Many lenders are currently experiencing a lull in activity, leading to strategic rate adjustments to attract more borrowers. 

Despite these minor rate drops, the market still eagerly awaits a potential cut in Bank Base Rate (BBR).  

A reduction here would significantly benefit the entire market, signalling a peak had been reached, and providing a more substantial and long-lasting impact than the current modest rate adjustments by individual lenders.  

The anticipation of such a cut has led to a recent understandable shift in some borrowers’ product preferences. 

 

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Banking on tracker mortgage rates 

One of the most intriguing trends we’ve seen is the increase in borrowers opting for tracker mortgages. These products, often devoid of early repayment charges (ERCs), provide flexibility.  

The anticipation being rates will continue to fall in the coming months, making tracker mortgages an attractive option for those looking to benefit from future rate reductions without being locked into a fixed rate. 

Trackers currently offer a unique advantage. For example, Barclays offers sub-75% loan to value (LTV) trackers at around 5.4%, compared to two-year fixed rates at approximately 4.8%.  

While initially higher, trackers present a strategic play; borrowers can ride out the current rates with the flexibility to switch to a fixed-rate mortgage when they believe rates have stabilised or dropped sufficiently.  

Two cuts to BBR by the end of the year and you can sense why they might appeal.  

In contrast, we’ve seen something of a decline in interest, again understandably, in five-year fixed rate mortgages. This is particularly true in the residential market, where the focus is on minimising costs and maximising flexibility. However, for buy-to-let investors, there remains a case for fixed rates, particularly when it helps meet affordability criteria. 

The current market sentiment does however reflect the display of a more cautious optimism. Whatever your political affiliations, we now have a more stable political picture with a Labour government for at least four to five years, and we shouldn’t underestimate how important that is, particularly to those who invest in our country but also in terms of investment funding for our mortgage market.  

 

Stability ahead 

It is to be hoped that all of this, of course, translates into a more certain picture for borrowers and their advisers.  

In that sense, tracker mortgages are gaining traction because they offer a strategic hedge to play against the near-certainty of future rate falls. This trend is likely to continue as predictions for multiple BBR cuts by institutions like the International Monetary Fund (IMF) suggest a downward trajectory for interest rates over the next year and beyond. Perhaps even three, four or five cuts during 2025. 

It’s also worth addressing the underlying factors influencing lender behaviour.  

There’s a palpable sense of frustration in the market about the perceived greed of some lenders. The drive to raise rates during the spring, despite the modest changes in swap rates, was seen as a tactic to boost profitability rather than a reflection of genuine market conditions.  

Now, of course, we are seeing a growing clamour to adjust rates to maintain competitiveness when we might have anticipated more stable pricing earlier in the year. Higher rates, of course, put many would-be borrowers off, plus they ostracise many who want to buy but can’t meet affordability, such as first-timers. 

It’s clear from recent weeks that lenders might well have tipped too far over the edge during the spring, and are now having to re-evaluate their strategies as we have moved into the second half of 2024.  

We have not talked to any recent lender representative who has been bullish about their business levels through June and the first half of July. That in itself, tells its own story, and we can only assume that many are having to reassess their H2 2024 approach to ensure they can meet their targets for the year as a whole.