Base rate held at 5.25%
As widely anticipated, the Bank of England (BOE) Monetary Policy Committee (MPC) have today held the base rate at 5.25% for the sixth meeting in a row. Out of the nine members on the MPC, two voted to reduce the base rate and I believe this number will increase to three or four members at June’s meeting, before we finally get the required minimum of five members voting for a 0.25% cut at the meeting on the 1st August.
At the start of 2024, the financial markets were predicting up to six 0.25% base rate cuts this year, but these were the same markets that suggested it would peak at 6.0% last summer. My prediction in January of three 0.25% cuts won’t be far off as I still expect a minimum of two and maximum of four. Beyond this, there is a realistic path back to a base rate in the "3’s" in two years’ time.
Mortgage rates
Best buy fixed rates are set relative to movements in UK Swap rates, which have edged up by 0.60% over the last three months as markets realised there wasn’t going to be five or six base rate cuts this year. The corresponding increase in best buy fixed rates has taken the steam out of the very buoyant purchase market we saw in January and February, though it is still possible to fix for two years under 5% and fix for five years under 4.50%.
The typical five-year fix is 0.40% below the two-year fix and is proving popular as buyers want the lowest possible payments. However, there could well be buyers’ remorse two years from now as the financial markets still forecast a base rate in the mid 3’s which could mean being locked in for another three years at a rate around 4.50%.
Best buy tracker rates remain around 5.50% and are a good option for those borrowers that expect rates to fall over the next year as they often come with no penalties and the option to switch to a lower fixed rate as and when they become available. Last summer, savvy borrowers opted for this and were then able to fix for five years below 4% when rates fell earlier this year, and I expect the same thing to happen over the next year.
Housing market
The purchase market is no longer seasonal in terms of the busiest periods being spring and early autumn, and now appears to be driven by the price of fixed mortgage rates. Back in January and February when best buy two-year fixes were routinely available around 4.30% and five-year fixes around 3.9% we had our busiest months ever. With 0.60% increases in fixed rates since then, buyers are less active and hence with less buyers around, now is a good time to negotiate.
It’s also worth noting that it takes around 4-5 months to complete a purchase, therefore, negotiating now whilst there are less buyers about could prove a double win as aside from being able to negotiate on price, it’s likely that you will qualify for a lower rate by the time that the purchase completes. As always, we will monitor rates right through to completion for all our purchase and re-mortgage clients to ensure you get the best product.