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Double interest rate cut possible before December – Knight Frank

  • 27/07/2016
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Double interest rate cut possible before December – Knight Frank
The Bank of England could cut the base rate more than once before December, according to Knight Frank, despite broker sentiment that interest rates will be held again next month.

Brokers appear to be divided over the direction of interest rates next month, with a Mortgage Solutions poll of 185 readers revealing that 51% expect the Bank Base Rate to remain at 0.5% and 43% predicting it will drop by 0.25%. Just 2% of respondents think that rates will rise by 0.25% or more and 4% anticipate a reduction of 0.5% or more.

Earlier this month, Simon Checkley, managing director at Private Finance predicted that following the Bank’s decision to maintain rates in July, it would slash the base rate by 0.5% in August.

However, Simon Gammon, head of Knight Frank Finance, expects the Bank’s Monetary Policy to be fairly cautious on monetary loosening in August, with the outlook of the political landscape and economy more certain than in July.

“One of the biggest reasons the Bank didn’t drop the base rate last month was because it felt that the economy could cope with it. August will be quieter, with less chance of a big reaction, but I think the Bank will still opt for a very cautious drop or they may even hold it again.

“It’s quite possible that the bank could drop the rate by 0.25% next month and make another drop by the same level before December. But I do think it will be small adjustments that are made, with a ‘wait and watch’ approach by the Bank,” he added.

In terms of lender reactions to falling interest rates, Gammon said institutions are likely to be keeping a very close eye on lending to borrowers with small deposits.

“It will be too politically sensitive to withdraw from 95% mortgages but you might see banks increase their pricing so that they are no longer at the top of the league table,” he explained.

“It won’t be until September that we’re really going to be able to understand what’s happened to values in the property market. Our gut feeling says they have fallen but by how much, no one quite knows because enough transactions haven’t gone through.”

Stuart Gregory, managing director at Lentune Mortgage Consultancy, expects interest rates to experience a slight drop of 0.25% in August, but only if the Bank of England believes stimulus is required.

“I cannot see a rate drop of 0.50%. What happens then with lenders who have historic base rate trackers with high reductions?

“We’ve effectively been in a slide in the lead up to the EU vote so this won’t come as a surprise. George Osborne’s Stamp Duty changes for buy to let have added to this,” Gregory said.

“The mortgage market is at a crossroads. We’re heading to the time of year where lenders head for market share but in unusual circumstances.”

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