base rate

Falling inflation is a tonic for the market

We have a fairly considerable amount of time to wait before the Bank of England’s next Monetary Policy Committee (MPC) meeting on the 1st February 2024, however what will be interesting prior to that is to see whether inflation continues to move down as it has in the last few months.

Just prior to Christmas, we had the news of a further fall in both headline and core inflation, with the former dropping to 3.9% in November from 4.6% the month previously, while core inflation (stripped of energy and food prices) fell to 5.1% from 5.7%.

These were bigger falls than many had anticipated, and they may well place the MPC’s membership under increasing pressure to row back on some of the multiple bank base rate (BBR) rises we’ve had over the past year or so.

The money markets are certainly growing in certainty that 2024 will bring with it multiple rate cuts, even if the Governor of the Bank, Andrew Bailey, and many of his MPC colleagues appear to be adamant that none will be forthcoming in the near future.

That won’t stop the market speculating however, and it appears they are now ‘baking in’ four quarter-point drops throughout 2024, which would appear to put the kibosh on any ‘higher for longer’ policy that some in the Bank might be more in favour of.

Certainly, swap rates have continued to move downwards in recent weeks, and this has been translated into lenders cutting product rates – some of them multiple times within a very short period.

Clearly, lower mortgage rates are not to be sniffed at, and after a year when affordability was stretched incredibly thin – particularly for many remortgaging borrowers – this is a welcome move, especially for those who now have more options than just what is offered by their existing lender, via a product transfer.

This obviously aids advisers as well, given the lower proc fees offered – on the whole – for product transfer (PT) business, and I wonder if we are now looking at a much healthier remortgage market in 2024, than we would have had should rates have stayed very high?

Remortgaging remains the bedrock of the market, but has been usurped by PT activity in recent years, and even though advisers have taken a bigger share of this, there’s no doubting there is more income to be earned via a remortgaging client than one for whom best advice is to take the transfer.

With an existing borrower who has product options with other lenders, this can often open a gateway to a much wider discussion around other financial needs, namely protection, GI, conveyancing and the like, and given it is likely to have been some years since they spoke to the adviser, it provides an opportunity to carry out that full, holistic review.

Not just demanded by the client themselves, but also as part of the new Consumer Duty rules.

In that sense, falling rates provide advisers with a real chance to communicate with every single existing client, not just those who might be coming to the end of their deals, because saving money on a mortgage – even with an ERC – might still be possible.

Particularly if they are currently on, for example, variable rates or they had to remortgage over the past 12 months in that higher interest environment.

It won’t need me to tell you what the presentation of ‘good news’ on interest rates to clients can achieve.

Purchase activity has also been subdued due to rates, and a shift downwards might well mean clients are much more confident about the future, and willing to press ahead with a purchase they had been putting off due to the increased costs of financing it.

Overall, falling inflation followed by falling product rates, is a tonic for the market, and advisers should have no qualms about seizing on this news, informing clients of what is achievable, and working hard to ensure they cover off every single need they have in order to make it a better financial year for both those individuals, and the firm itself.

Keith Young is managing director of Broker Conveyancing