How will lenders respond to Andrew Bailey's remarks?

We were calling for a Bank of England pause in base rate increases before the last Monetary Policy Committee meeting, something that seems even more relevant now. The markets will react well to the Governor's latest comments, which should lead to more fixed-rate mortgage decreases from lenders.

Following the first real comments from the Bank of England that we are close to the end of rate increases, this should give lenders more confidence when it comes to pricing their mortgage deals. That, combined with a slowing property market in transactional terms, means lenders are fighting it out to secure market share, with many well short of lending targets for the year.

Both Jeremy Hunt and Andrew Bailey seem to be making positive noises about inflation, so it wouldn't surprise me if there's no base rate increase on September 21st. If there is, it could well be the last. Whilst we wait with bated breath, I suspect UK mortgage rates will continue to drop, as demand has decreased sharply over the past couple of months and lenders will be getting twitchy about transaction volumes.

Any predictions around the future of mortgage interest rates need to be taken with a large pinch of salt, particularly this year, where the economic outlook has shifted gears and directions more frequently than anyone could have expected. For any prediction, mortgage brokers typically look to the trend in ‘swap rates’ which are the guideline rates that lenders base their fixed rate pricing upon. These have continued to come down in recent months. Most notably for the first time in a long time, we are seeing reductions in the cost of 2-year swap rates, not just the 3-, 5- and 10-year swap rates. Perhaps this is an indicator that the market expects economic improvement even within two years, instead of after two years, as more recently predicted. Nonetheless, in my eyes, Andrew Bailey's comments should give lenders increased confidence to start passing on more significant rate reductions to borrowers.

I believe that mortgage rates will continue to fall until the next interest rate decision by the Bank of England. However, the falls that we are seeing at the moment are generally quite small and I feel that this is something that will continue moving forward. A lot of this increased competition in recent weeks is, I am sure, down to lenders needing to hit their targets for the year. With that in mind, they are jostling for position in the sourcing lists and are constantly introducing small rate cuts to get them to the top of the tree. If this prediction from Andrew Bailey is correct, which is a big if as all his other previous predictions have been wrong, we could see lenders continuing to cut lending rates even if the base rate does rise again.

Bailey's latest remarks were a bit of a surprise to me. They signal a potential good spell for borrowers on the horizon. As we near the next base rate decision, I'm bracing for a series of modest yet frequent rate cuts from high street lenders, who seem keen to expand their criteria and snatch a larger market share amid the dwindling demand for property. With the ever-shifting economic landscape and fluctuating swap rates, lenders seem poised to offer more substantial reductions, fostering a climate of optimism and keen competition. Let's watch this space closely.

I think that rates will increase again at the next Monetary Policy Committee meeting and then we will have a period of stability for circa six months. Hopefully, the latter half of 2024 we will see rates decreasing. It is all dependent on inflation and if that keeps trending down.