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The race to interest rate cuts has begun. What's next for mortgage prices?

The race to base rate cuts has well and truly begun. Indeed, this was largely signalled in interviews with the Bank of England’s Andrew Bailey after the MPC voted to hold rates for the fifth consecutive meeting. (Gareth Fuller/PA) (PA Archive)
The race to base rate cuts has well and truly begun. Indeed, this was largely signalled in interviews with the Bank of England’s Andrew Bailey after the MPC voted to hold rates for the fifth consecutive meeting. (Gareth Fuller/PA) (PA Archive)

The race to base rate cuts has well and truly begun. Indeed, this was largely signalled in interviews with the Bank of England’s Andrew Bailey after the MPC voted to hold rates for the fifth consecutive meeting.

However, the path to lower mortgage rates in 2024 thus far has not been as straightforward. January was a very positive month for the mortgage market, with mortgage rates and activity levels close to those we saw in summer 2023. This is down to the fact that many buyers were simply unwilling to wait any longer and were buoyed by a host of lenders cutting rates, and those needing to re-finance and were able to secure lower mortgage rates than had been available pre-Christmas.

Despite this early positivity, February saw a shadow of negativity hanging over the market again, with lenders increasing rates due to swap rate volatility, driven largely by the threat of inflation remaining stubbornly high and for longer than expected.

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But as inflationary pressures have eased, the shadows cast last month are lifting and there are signs the market is now finding its feet in a higher mortgage rate environment. In fact, a recent survey from the Family Building Society found that 68% of mortgage advisers have seen demand increase in the past few months. Further falls in mortgage rates will help to boost the market further, but it’s important to remember that this increase in activity comes off a very low base. For example, mortgages for house purchases fell 29% in 2023, so there is a long way to go before we can say the market has recovered. So far this week, several lenders have already started to reduce rates, and there is hope that more will follow suit following the positive inflation data.

If mortgage rates continue to soften and remain at consistently lower levels, it would be perfectly timed for the busy summer period for the housing market and would also help many thousands of borrowers to remortgage once their current deals have come to an end.

As the market reacts and takes stock following a busy week of economic data, there will be optimism abound - especially as the Bank of England voting intentions showed that for the first time not a single member of the committee pushed for a rate hike. It might still take a few months for the momentum to swing fully to enable a rate cut, but there is now much more confidence that we will see one or two through the summer and into the autumn. This will help people to feel confident to move home, where many may have chosen to delay that over the last couple of years.

Mortgage pricing will trend downward over the course of the year, but there will also be hikes along the way. There are also no guarantees that mortgage rates will come down much below where they are now and likely to be following the easter period. We do expect reductions to the point where some mortgage rates will start with a 3, but in the uncertain world we live in, it’s hard to be convinced as to whether they reduce much further than that.

For those looking to get ahead, use the coming weeks and months to become ‘mortgage ready’, through talking with a mortgage adviser. They will not only help you to find the best mortgage rate, but will also find out just how much you can borrow towards your ideal next home, and help you through the whole process.

For the industry and lenders though, now isn’t the time to be waiting on economic conditions to improve in order to innovate and help even more people to buy. It would be nice to see innovation to allow renters who are trapped paying expensive monthly rents to be able to buy. Rent tracking products already on the market are a great first step, but more can and should be done to further this, to enable current renters to make their first leap onto the property ladder at a more optimal age and time.

Ben Thompson is the Deputy CEO at the UK’s leading mortgage intermediary, Mortgage Advice Bureau