If you have read some of the recent headlines, then apparently lenders are ‘spooked’ by recent increases in swaps, which for some have necessitated them to either inch rates upwards, or pull some of their ‘best buy’ products.
It’s true of course that swaps in the last week or so have inched back up – they are a little above where they were this time last month but still quite noticeably down on where they were this time last year, let alone where they were before August’s Bank Base Rate (BBR) cut.
Coventry, Santander and Barclays have all been in the news due to rate changes/product pulls, although whether we can truly say they are the catalyst for cross-market cuts remains to be seen.
Whatever way you look at it, the price rises have been minimal, and we are in something of a limbo period anyway before the end of month Budget, and November and December’s Monetary Policy Committe (MPC) meetings.
You might anticipate that during these months we would have seen a little retraction after a four to six-week period when rates have pushed down fairly relentlessly.
These are rates and of course they don’t move in a linear direction all the time; this ebb and flow is natural, particularly when it comes to swap rates and the reaction this generates, but from our perspective any short-term upward movement in rates has to be set against the context of what is likely to unfold over the next 12 months or so.
Indeed, what may be about to unfold over the rest of the year, when if you were a betting person, you might be tempted to wager that we’ll get at least another BBR cut in at least one of the two remaining meetings.
There is, as always, both a national and international perspective to all of this.
Further afield, and notably across the Atlantic where we have the small matter of a US Presidential Election in a few weeks’ time, there is a whole debate going on about whether the US economy could be heading for a recession, and the Federal Reserve appears not to be letting the grass grow under its rate-setting feet in terms of acting to stave this off.
It is due to meet again in early November, and while we might not see a 50bps cut as we did at September’s meeting, the mood music appears to be swinging the way of a further 25bps cut.
That, in itself, will have a clear influence and impact on what the Bank MPC decides to do, and again – if we are to believe the sometimes contradictory messages coming out of various MPC members – then there is the potential for further rate cuts over the course of the rest of the year.
We should also reflect on what lenders might be in the process of doing during this period. The last quarter of the year is always interesting from a mortgage market perspective, not least because business applications put in now, may actually not complete until the next year, certainly when it comes to purchases.
Therefore, we are someway between writing business for a 2024 calendar year-end, and developing pipeline business for the early part of 2025.
How lenders react now will be determined by where they currently are in their yearly targets, and what they might feel they need to do in order to hit those come the 31st December.
Secondly, and on a similar point, as advisers we should also be aware that rate changes – particularly upward rate changes – are often determined by service levels, and the ability to service business that has already come in.
It may well be that the lenders mentioned above have been up at the ‘top of the charts’ for some time and bringing in business commensurate with that.
We might all know that certain lenders could require an easing off on the lending pedal for a while in order to deal with what they have in the current pipeline, before attempting to fill it even more. Service is not a uniform process either and rate changes reflect this.
Overall therefore, while rates may bump up a little in the coming weeks, there is enough in all our futures to think that they will continue to dip again in the not so near future.
And, of course, a message out to borrowers which effectively says, ‘The best rates might be going up soon’, is not a bad one for our sector if it encourages clients to act sooner rather than later. There is always a positive to be found.
Sebastian Murphy is group director at JLM Mortgage Services
