The next meeting of the Monetary Policy Committee (MPC) takes place on Thursday 23rd March, just over a week after the Budget, and to say the two announcements will be connected, seems like something of an understatement.
As I write, it seems like an impossibility to predict what the MPC might do, especially given the mixed messages that are coming out of the Bank of England with regards to the future direction of Bank Base Rate (BBR).
Type in ‘Andrew Bailey’ into Google, and the top stories in the last 24 hours read as follows:
‘Bank of England boss signals interest rates may have peaked’. (The Guardian).
‘Bank of England boss says UK interest rates may rise further’. (BBC).
‘Andrew Bailey downplays talk of sharp rise in interest rates’. (The Telegraph).
‘Interest rates may need to go higher, Andrew Bailey suggests’. (The Times).
So, which one is it? It can’t be both. I’m reminded of previous Governor, Mark Carney’s, initial attempt to deliver ‘forward guidance’ on the future direction of rates, which was soon jettisoned as it became clear no-one really knew what rates were going to do beyond the next MPC meeting.
And this seems to fall into the same problems. Bailey can’t really be all things to all men/women, when it comes to rates, because things do change so quickly, and this is a Committee decision.
For example, in the lead up to last month’s MPC decision, the prevailing mood appeared to be one that suggested this was likely to be the last increase in BBR for some time, only for two members of the MPC to immediately come out and say they anticipated rates would need to rise again, while a further member then said she thought rates shouldn’t be increased any more.
Of course, the whole point of having a committee is that you have a wider range of opinions on BBR decisions and the majority will out, but again, an approach – between meetings – where everything seems up for grabs doesn’t really provide any sort of certainty about what the decision might be. Especially when it’s the Governor who appears to be hedging their bets.
At the same time, and of particular pertinence for the mortgage market, is of course the direction of swap rates, which were rising over the past couple of weeks, but (again as I look today) have fallen.
As we know, these have much more relevance to mortgage product pricing – particularly fixed-rates – and we currently retain the position of the last six months or so, whereby longer-term money is cheaper than short-term.
This in itself, partly tells us why – for those with bigger deposits/equity – there are currently 5-/10-year fixed-rate products available from a number of lenders below 4%, and I suspect even if BBR was moved upwards again, those products would continue to be offered at these levels.
A big reason for this – and I suspect advisers are having to explain this a lot to borrowers – is the need for lenders to secure the business that is out there. The figures coming out over the past week or so show transaction numbers having dipped fairly significantly at the end of 2022, with the expectation that not much will have changed in the first two months of 2023.
In other words, lenders – particularly the big, mainstream operators looking for residential business – need to be priced competitively in order to secure the business that does exist and to ensure they are anywhere close to the targets they will have set themselves for the year.
In essence, we can see that it is a pretty complex situation, with many factors at play determining what is currently on offer, what may be offered in the next few weeks, and what this will mean for the market and activity over the medium-term.
As advisers this of course presents a compelling narrative in terms of securing the business that is out there. Few clients – I would suspect – will feel comfortable ‘going it alone’ when it comes to making their mortgage decision, because of the higher chance that they will make the wrong one, in a market which can shift quickly.
There is plenty of ‘news’ – often contradictory as mentioned above – that may confuse borrowers/clients. Advisers have the overwhelming opportunity to ensure they can sort the wheat from the chaff, and tell it like it is, not like it might be. Make sure you get that message out.
Bob Hunt is chief executive of Paradigm Mortgage Services
