Ahead of Wednesday’s CPI data, mortgage brokers have said that if inflation cools materially, the mortgage rate war will become even more fierce as lenders compete for business after a quiet year of purchase activity.
Gary Bush, director at the Potters Bar-based broker, MortgageShop.com said: “Any notable drop in inflation will continue to drive the fixed rate price war currently raging between lenders, and hopefully across all loan-to-values not just the high equity or deposit loans, as has been happening of late.”
According to John Choong, senior equity research analyst at Investing Reviews: “Cooling inflation will heat up the mortgage rate war. If inflation somehow manages to cool to the 5.6% the Bank of England is expecting, or miraculously even lower, borrowers will have a field day.”
Ranald Mitchell, director at Norwich-based independent mortgage broker, Charwin Private Clients, agreed: “Inflation falling will have a positive impact on the mortgage market, and if it falls further than expected then we will likely see wholesale downward repricing. Over the past two months or so, we’ve had tit-for-tat, slow and tentative rate cuts but lower-than-expected inflation could see lenders take off the gloves. Hopefully, positive inflation data will filter through to the repricing of higher loan-to-value products to stimulate first-time buyers and home movers into action.”
Much the same conclusion was drawn by Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, who said: “Falling inflation will give much-needed respite to the mortgage market and potentially give borrowers a major boost, as lenders further reduce fixed rates based on an enhanced medium-term outlook.”
Rob Gill, managing director at London-based broker, Altura Mortgage Finance, was also upbeat: “Mortgage lenders are already fully engaged in a mortgage price war as they compete to make up business in what’s been a quiet year, so further falls in inflation will only accelerate this trend. If inflation cools materially, more rate cuts into the New Year and beyond will be very much on the cards.”
But Craig Fish, director at London-based broker, Lodestone Mortgages & Protection, said it could be the New Year before rates start coming down in earnest: “I sincerely hope the Bank of England’s predictions aren’t wrong and that inflation does drop as expected. Equally, I think that caution will continue to be the keyword in the markets and don’t expect any significant reductions in swap rates or mortgage rates until the New Year, when we might start to see some more aggressive pricing from lenders in a bid to start 2024 on a strong footing.”
Rohit Kohli, director at The Mortgage Stop, also sounded a note of caution: “Inflation falling below 5% will be great news in the short term but let’s not forget that this is just reflecting the drop in energy prices now coming through the system. Wages are still rising significantly above inflation rates and with uncertainty across the world and energy prices on the rise again, it would not be surprising to see inflation go back up again in the coming months. While we’ll continue to see interest rates stay competitive, we are nowhere near the Bank of England considering any base rate reductions.”
Justin Moy, managing director at EHF Mortgages, agreed with Kohli that the base rate is not likely to be cut anytime soon: “Mortgage rates will continue to slip towards more palatable levels over the next 12-18 months, rather than see seismic rate cuts in the immediate future. While inflation does look to be falling quickly, that can easily be reversed by fuel inflation that is still on the horizon, hence why the base rate will stay at 5.25% for another six months or so. Caution is required but improvements in mortgage pricing are increasingly evident.”
Alastair Hoyne, CEO at Finanze, what the market really needs is stability: “We’ve already seen lenders reduce rates across the board, which is welcome news for borrowers, especially those coming off very low fixed-rate deals and facing a huge hike in payments. An early Christmas bonus with lower rates will always be welcome, but we need to avoid knee-jerk reactions to headline CPI figures. The lending market needs stability. Consumers need confidence in what’s around the corner. If rates do start coming down, it should be on the basis that reductions are sustainable for the longer term and don’t head back up again due to cutting too soon.”
But for Bob Singh, founder at Uxbridge-based Chess Mortgages, rates may need to start with a three if the wheels of the property market are really to start turning again: “Rate competition between lenders will intensify if Wednesday’s inflation figures fall as much as expected. With 2- and 5-year fixed rates already breaching the 5% mark, this will only translate into lower interest rates going forward. But in a market starved of activity and with consumers lacking confidence, 4% could be the real barrier for lenders to break to attract borrowers in earnest.”
