Mortgage Solutions sat down with Tony Ward for a Q&A session to shed some light on what the coming weeks may hold for the mortgage market and how the Bank’s decisions may impact the industry.
Q. What can we expect to see from mortgage rates and the Bank Base Rate over the coming weeks?
A. Firstly – I don’t think the Bank Base Rate and mortgage rates are going anywhere right now. There is speculation that rates might fall but I doubt it. They only have 0.5% to play with and I’m not sure it would make much difference. Countries with zero rates or even negative rate policies have demonstrated that this hasn’t kick-started their economies. At the moment we don’t know to what extent inflation is going to creep in given a weak pound which will mean that exports are more expensive, pushing up the price of goods. Whilst rising inflation could be met with a rate hike, I don’t think so. My conclusion is the Bank of England will do nothing for now and nothing hasty in any event.
Q. Some people think the Bank Base Rate would rise as Carney tries to ‘shore up the pound’ – how would an increase in Bank Base Rate help to strengthen the pound and what impact would this have on the mortgage market?
A. A rise in rates would have the effect of making sterling more attractive to overseas investors but the Bank of England will have to weigh this up against the negative impact on borrowers and therefore the economy. He’s unlikely to do this right now.
Q. Which lenders may struggle the most during these uncertain times and why.
A. Yesterday saw shares in certain banks and life companies being suspended and other smaller banks in particular saw share prices off by up to 50% because of fears of vulnerability. Investors have been spooked. But UK banks are well capitalised – this is not like 2007 – and I would add that they are probably in better shape than a number of their European counterparts.
Those banks that need to passport into Europe will be concerned about how this will work post-Brexit but that’s a little way down the road. Also, if rates are low then retail funded banks will find it difficult to raise funds at attractive rates.
There’s a flight to safety – and some smaller long-established lenders may yet do well out of this but expect the big ‘safe’ banks to do better.
