2- and 5-year swap rates, which determine mortgage pricing, headed south throughout Wednesday and Thursday morning after the dire PMI data, a respected indicator of where the economy is headed next.
On Wednesday morning, the composite PMI dropped to 47.9, marking its lowest level in over two and a half years, while the services PMI hit a 7-month low and the manufacturing PMI a 39-month low.
Throughout Wednesday, the 2-year SWAP fell to 5.489%, down from 5.668% on Tuesday, while the 5-year SWAP dropped below 5% to 4.824%, from 5.017% on Tuesday. The trend continued on Thursday morning, with the 2-year SWAP falling further to 5.449% and the 5-year SWAP to 4.778%.
Mortgage brokers said the bad economic news, with growing fears of a recession, could result in a more doveish stance from the Bank of England, which could translate into good news for mortgage borrowers and the property market.
Lewis Shaw, founder of Shaw Financial Services, said: "Though Wednesday's PMI data gave a dire outlook for the economy as a whole, it could ironically spell good news for mortgage holders. Throughout Wednesday and on Thursday morning, SWAP rates came down, which could translate into further mortgage rate reductions in the coming weeks."
Darryl Dhoffer, founder of The Mortgage Expert, agreed: "The grim PMI data released on Wednesday morning will give food for thought to all those on the Monetary Policy Committee. A further rate rise of 0.25% in September still looks likely, but future rises look harder to justify given the sheer number of headwinds now facing the economy. This could be the turning point we have all been hoping for in terms of mortgage rates, with further reductions possible in the days and weeks ahead."
Much the same view was given by Justin Moy, founder of independent mortgage broker, EHF Mortgages, although he suggested another base rate increase is still likely: “This is positive news for all people with mortgages and helps justify, and explain, the recent rate reductions across the mortgage market. 5-year SWAP rates have nudged below 5% for the first time in a while, but that's unlikely to prevent another base rate increase, as inflation still needs to be tackled."
Riz Malik, director of mortgage broker, R3 Mortgages, suggested we may now see the base rate come down sooner than expected, although it may prove too late for the under-pressure property market: “The growing number of economic setbacks we're now seeing might result in rates coming down sooner than expected in an attempt to boost economic activity. The question is whether these rate reductions will come quickly enough to rescue the disastrous year for the UK's property market. Its fate could have been sealed by then."
Graham Cox, founder of the independent mortgage broker, the SelfEmployedMortgageHub.com, cut straight to the chase: “Perversely, bad economic news is good news for mortgage rates at present, as the disappointing PMI figures illustrated very clearly yesterday. It's now less likely the Bank of England base rate will rise as much as previously feared.”
Clive Read, owner at broker Goldmanread, was unequivocal in his assessment: "The pronounced fall in Wednesday's PMI is a clear sign that the Bank of England's rate rises are starting to have a significant impact on the real economy."
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