In the lead up to this month’s Monetary Policy Committee (MPC) meeting to determine the future direction of Bank Base Rate (BBR), I struggled to find any economist or commentator who would even consider the notion of the Committee voting to cut rates.
As it so happens, the results of the meeting show there were at least two people in the country who believed BBR should have been cut, and they just so happen to be members of the MPC. So, that being the case, perhaps the nailed-on certainty of the decision to hold rates wasn’t quite as nailed-on as we might have anticipated.
Having said that, the majority of members did vote for a much-anticipated hold, although we have moved from an 8-1 voting majority to one of 7-2. So, what does this all mean for the future?
Well, it perhaps suggests that those – and there were many earlier in the year – who anticipated June’s meeting would be the one which would see a BBR cut, are perhaps a little more confident in that happening, although it has to be said, the markets are looking further out to either August or September. Perhaps even both? Now I really am getting ahead of myself.
Any such decision will of course be predicated on inflation moving further down towards its 2% target and – crucially – being able to stay there. While the Bank appears to be confident about the former, it also anticipates inflation will ‘increase slightly in the second half of the year owning to the unwinding of energy-related base effects’.
Whether any further dip, and a ‘slight’ H2 increase, in inflation is enough to steer the MPC away from cutting Bank Base Rate remains to be seen, but I sense from public utterances out of various MPC members, that it does not deem these a huge obstacle in terms of its progress to cutting rates.
Again, without having any sort of crystal ball, it does appear we are much likely to see a cut in late summer/early Autumn, rather than next month, although we might see more MPC members voting for such a decision.
Certainly, the latest summary out of the MPC for May does reveal a somewhat more positive picture for our housing/mortgage market, even if we have seen product rates rising again in recent weeks, following a fairly sharp fall at the start of 2024.
The MPC points out rates are now ‘substantially below the levels reached last summer’, and product numbers are back up to the levels seen before it started increasing BBR.
Other positives come in the shape of lenders reporting improvements in the availability of secured lending for the second quarter in a row, and while mortgage lending still remains pretty flat, and on a low base, again lenders are expecting this to increase during the rest of the year.
It also points out that mortgage approvals were up for the sixth month in a row in March, although again we are not yet at the pre-pandemic averages.
In that sense, there are those much talked about ‘green shoots’ but we still appear to be on a lengthy journey to get back to a pre-Covid normality, or indeed anywhere near the market we had after the first lockdown when that pent-up demand was fully unleashed and realised.
Overall, therefore, while we might all appreciate a small pick-up in activity, an increase in consumer confidence, greater levels of product availability, etc, we are still a mortgage market getting to grips with the higher rate environment, and particularly, the affordability challenges this presents for those who want to purchase for the first time, and those who are coming off their existing mortgages.
And, judging by what the MPC are saying, we might not expect a huge difference in rates over the course of the rest of 2024 and possibly into next year. The markets are now suggesting two quarter-point cuts at some point during the rest of 2024, which is a shift from the four they were predicting at year-start.
If we do get these, we would finish the year with a BBR of 4.75% – now, while that would clearly be welcome and would hopefully be translating into mortgage product rates being lower, more borrowers able to achieve affordability, etc, it is clearly a long way from what borrowers might have mortgaged into the last time they secured home finance.
Therefore, are we likely to see a big shift upwards in mortgage business activity as a result? We might get some, but nothing too earth-shattering, and that might also mean another year of big numbers of PT business being written, as existing borrowers can’t remortgage elsewhere and choose to stick with their existing lender for both administrative and affordability ease.
In other words, 2024 looks like mirroring last year again, which places the onus once more on advisers ensuring they cover off all client needs, not just the mortgage.
Consumer Duty actually makes this approach more important, necessary, and more of a regulatory requirement, and therefore while we await any big shift in mortgage activity – which might not come for many, many months – advisers must make sure they cover off as many ancillary sales opportunities as possible. There is income to be made there, and if you don’t, someone else will.
Keith Young is managing director of Broker Conveyancing
