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Fixed rates could fall even if Bank raises interest rates - brokers

ended 02. August 2023

In encouraging news for borrowers, brokers have said that even if the Bank of England increases interest rates today by 0.25%, as expected, the rise in the base rate has already been priced into fixed rate mortgages.

“Regardless of what the Bank of England does tomorrow, there will be no movement in fixed rate mortgage pricing because this has already been baked in”, says Lewis Shaw, owner of Mansfield-based Shaw Financial Services.

Shaw's views were mirrored by Craig Fish, managing director at London-based mortgage broker Lodestone: “The Monetary Policy Committee is fully expected to increase rates by at least 0.25% on Thursday, but this will have no impact on the fixed rates that are available. Most fixed rates on offer right now already have a rate rise factored into them. What is going to impact them, though, is the release of the inflation data on 16th of August and what that does to SWAP rates, which influence mortgage pricing. If, as expected, inflation falls then I suspect we may see more lenders continue to lower rates as we have seen over the past week.”

Darryl Dhoffer, founder of Bedford-based The Mortgage Expert, also noted the importance of the inflation data due to be published mid-month. “Looking at the past two weeks, 2-year and 5-year SWAP rates, which influence the pricing of 2-year and 5-year mortgages, have largely remained steady, which implies that lenders have already priced in any rises in fixed rates. I would not expect the majority of lenders to reprice any fixed rates until the next release of inflation figures on August 16th.”

Rob Gill, managing director at mortgage broker Altura Mortgage Finance, went one further and suggested that a 0.25% rise in rates on Thursday could even be good news for fixed rate mortgages: “A base rate hike is very much priced into the majority of lenders' fixed rates. Up until last month's inflation figure delivered a lower-than-expected number, a hike of 0.5% was widely expected in August. However, a hike of 'only' 0.25% could ease pressure on fixed rates and even encourage lenders to deliver cuts.”

Meanwhile, Elliott Culley, director at Hayling Island-based Switch Mortgage Finance, said what's in the minutes of the Bank of England interest rate meeting could be as important as the number itself: "If it is suggested that the base rate might not need to go as high, we may see some further reductions in mortgage pricing. If, however, the base rate rises by 0.5% or the minutes suggest the base rate will still need to rise as high as 6.5%, we could see mortgage rates starting to rise again."

One broker, Peter Stamford, director of Alston-based Moor Mortgages, also warned that if the Bank of England raises rates by 0.5% on Thursday, all bets are off: "A 0.25% hike by the Bank of England may merely ripple the mortgage pond, but a 0.5% increase could create waves, stirring up the lending waters. Tomorrow is a big day for borrowers and the country in general.”

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13 responses from the Newspage community

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Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
Looking at the past two weeks, 2-year and 5-year SWAP rates, which influence the pricing of 2-year and 5-year mortgages, have largely remained steady, which implies that lenders have already priced in any rises in fixed rates. I would not expect the majority of lenders to reprice any fixed rates until the next release of inflation figures on August 16th.
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Rob Gill
Managing Director at Altura Mortgage Finance
A base rate hike is very much priced into the majority of lenders' fixed rates. Up until last month's inflation figure delivered a lower-than-expected number, a hike of 0.5% was widely expected in August. However, a hike of 'only' 0.25% could ease pressure on fixed rates and even encourage lenders to deliver cuts.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
A 0.25% hike by the Bank of England may merely ripple the mortgage pond, but a 0.5% increase could create waves, stirring up the lending waters. Tomorrow is a big day for borrowers and the country in general.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
The Bank of England decision should have no impact on the fixed rates on offer, provided of course they raise the base rate by the expected 0.25% as this has already been priced into the current products based on the swap rates. If the MPC do something more drastic, though, then it could see an upward change in rates.
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Rohit Kohli
Director at The Mortgage Stop
Lenders were very quick to increase rates following the surge in swaps rates but have been slower to follow them down. We've seen further reductions this week from some major lenders, which leads me to believe that some of the expected Bank of England increase is baked into their products already. However, if we see an increase at the top end, we may see some tweaks upwards in the coming days. But don't expect major movements in the mortgage market until August's inflation data is out later this month.
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Editor
Craig Fish
Director at Lodestone Mortgages
The Monetary Policy Committee is fully expected to increase rates by at least 0.25% on Thursday, but this will have no impact on the fixed rates that are available. Most fixed rates on offer right now already have a rate rise factored into them. What is going to impact them, though, is the release of the inflation data on the 16th of August and what that does to SWAP rates, which influence mortgage pricing. If, as expected, inflation falls then I suspect we may see more lenders continue to lower rates as we have seen over the last week.
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Elliott Culley
Director at Switch Mortgage Finance
Thursday's MPC meeting is the next milestone in the ever-changing landscape that is mortgage rates. Before the July inflation figures were released, a 0.5% increase was expected and the Bank of England had suggested the base rate would need to go as high as 6.5%. When the inflation figures were lower than predicted, this has led to forecasts suggesting we might not need to go as high and a 0.25% rise is now expected. The key will be the comments made alongside this rise. If it is suggested that the base rate might not need to go as high, we may see some further reductions. If, however, the base rate rises by 0.5% or the comments suggest the base rate will still need to rise as high as 6.5% we could see mortgage rates starting to rise again.
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Jamie Alexander
Mortgage Director at Alexander Southwell Mortgages
It appears that the anticipated 0.25% rise has already been taken into account, leading to an expectation of rate stability until the next inflation data is published. However, should there be a more assertive base rate increase, the potential impact on various factors becomes less certain. Lenders have shown a reluctance to make substantial rate reductions following last month's encouraging inflation data. A hike of 0.25% could even ease pressure on fixed rates and encourage lenders to deliver cuts.
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Ross McMillan
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
Lenders have largely been slow to reduce rates significantly since the positive inflation data of last month as the effect on the critical swap rates has been relatively minor so far. It does feel like the expected rise of 0.25% has already been factored in and - until the next inflation data is released - a period of rate stability rather than fluctuations is most likely. However, should any base rate increase be more aggressive it is a little more uncertain as to how this may impact things. Perhaps more significant than the level of any rate hikes will be the commentary from the Bank of England that surrounds this, as if this were to indicate that further rate rises may not be necessary, it could trigger some respite for beleaguered borrowers and a reduction in rates across all terms heading into the last quarter of the year.
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Graham Cox
Director at Bridging Hub
If, as expected, the base rate only rises 0.25%, it's unlikely mortgage rates will move higher in my opinion. Rates are already high and the increase is widely expected. That said, the money markets will be interested in how the MPC committee vote is split to gauge current thinking around the inflation and economic outlook, as well as any comments from Andrew Bailey, the Bank of England governor.
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Lee Gathercole
Co-Founder at Rebus Financial Services
Mortgage lenders have already factored a marginal increase in the base rate of 0.25% into their fixed mortgage rates for 2 and 5 years, so I can't see any nasty surprises here which will be pleasing for both first-time buyers and homeowners as inflation looks like it is starting to come down. In the unlikely event we see a rise of 0.5% or more then sadly fixed rates will rise again.
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Jonathan Burridge
Founding Adviser at We Are Money
If base rate does rise then the Bank of England is acting as predicted, which the market-makers like, so, it is unlikely that we will see sentiment change. It is encouraging to see that a number of lenders have been reducing their product pricing slightly, so that may continue. It will be interesting to see what the markets will do if the MPC decide to hold, that could go either way. It might be a sign that there is confidence that the strategy is working and that might reduce SWAPs, or it may be seen as poor policy, which may send SWAPs up again.
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Ben Tadd
Director at Lucra Mortgages
The widely anticipated rate rise of 0.25% forecast by the Bank of England isn't expected to have any negative impact on fixed rates, as lenders have already priced in the impending increase within their product margins. If the base rate is increased by 0.5% then both shorter and longer term fixed rates are likely to remain stable, if not continue to reduce based on the mini rate-war we have witnessed in the market throughout the last ten days. Only if the base rate is hiked more aggressively by 0.50% might we see a short, albeit small increase to fixed rates, although this is unlikely to be for a sustained period.