600,000 people on tracker mortgages just benefitted from the 0.25%-point shaving. For everyone else, the picture ranges from unclear to inflationary.
Mortgage experts aren’t overly enthused about welcoming a 0.25% point cut in interest rates and say contractors shouldn’t be either.
But before they urged caution, Broadbench, Cleerly and Freelancer Financials, all said yesterday that a base rate of 4.75% will help some.
‘UK interest rate cut directly helps 600,000 tracker mortgage customers’
Broadbench’s Tom Hitchcock told ITContracting.com it could lead to lower monthly repayments, and make borrowing more affordable.
Cleerly’s Sat Singh told ITContracting.com it might aid those seeking to borrow for a home loan or manage existing mortgage costs.
Freelancer Financials’ John Yerou said the 0.25 basis points snip has immediately eased rates for 600,000 people on tracker mortgages.
‘Under the last government’
The Bank of England’s move on November 7th was the second of its kind this year, following the same 0.25%-point shaving in August.
The August cut was the first reduction in the base rate for four years, but in September, ahead of Autumn Budget, the BoE held rates.
Unveiled on October 30th, Autumn Budget makes clear that inflation is set to rise, from 1.7% now to 2.5% this year, and to 2.6% in 2025.
It’s far off the plus-11% “under the last government,” the chancellor has reminded, yet inflation creeping back up will snuff out any relief.
‘Rate cut upside may be tempered by rising inflation’
“The rate cut’s upside may be tempered by forecasts of rising inflation which could lead to higher rates,” warns Broadbench.
“And if inflation continues to rise, the BoE may reverse the cuts or raise rates again, potentially offsetting any short-term benefits,” added Mr Hitchcock, Broadbench’s managing director.
Ominously, mortgage lenders were “steadily increasing” their interest rates (albeit by small margins) before the BoE’s cut, says Singh.
‘Autumn Budget 2024 could become a higher inflation driver’
“Some of this was triggered by a Budget that could become a driver of higher inflation,” said Cleerly’s CEO, referring to VAT on school fees and other Budgetary measures that will stoke inflation in pursuit of higher economic growth.
There are two reasons why lenders won’t necessarily drop their rates due to the BoE’s cut (indeed, reports imply lenders are actually increasing them).
“Mortgage lenders haven’t been using the base rate to set their current rates,” begins Yerou, CEO at Freelancer Financials.
“Secondly, lenders have been working on ultra-thin profit margins for months now.
“They’ve been doing this purely to try to ease the burden of higher interest rates for cash-strapped homeowners.”
‘Inflation currently behaving itself’
Also the CEO of Mortgage Quest, Yerou says despite inflation currently “behaving itself” at 1.7%, he doubts the BoE will cut again when its monetary policy committee next meets on December 19th.
Yerou’s forecast looks creditable.
BoE governor Andrew Bailey reportedly said after Thursday’s shaving that the base rate could not be cut “too quickly or by too much”.
‘Going gung-ho with the base rate’
The boss of Mortgage Quest and Freelancer Financials said: “There’s too much global volatility that could impact inflation to start going gung-ho with the base rate.
“[And partly as a result], I also foresee very little movement in current average mortgage interest rates.
“Moneyfacts reports current mortgage interest rates of 5.40% for a 2-year fixed, and 5.11% for a 5-year fixed.
‘Base rate isn’t the sole determinant’
Last night at Cleerly, its chief executive Mr Singh said: “It shows that nothing can be taken for granted about the direction of mortgage rates.
“It is not the base rate alone that determines how much contractors will pay, so early planning and advice is crucial for contractors.”
Broadbench’s Mr Hitchcock advised: “Contractors should consider both the immediate relief from lower rates and the longer-term inflationary pressures when making financial decisions.”
‘Unclear’
At Freelancer Financials, Mr Yerou summed up: “For now, the 600,000 people on tracker mortgages are the beneficiaries of the bank’s interest rate cut, as they’ve seen an immediate drop in their mortgage interest rate. For everyone else, the picture is unclear.”
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