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Industry experts remain confident in their predictions for a reduction to the Base Rate as early as June, meaning many landlords are holding out on their refinance options. Below, we discuss why a drop in the Base Rate won’t necessarily mean cheaper mortgage pricing. 

Following fourteen consecutive Bank of England Base Rate (BBR) rises from December 2021 to August 2023, BBR has held steady at 5.25% for eight months. At the same time, inflation rose from 5.4% to 11.1%. Since the peak, it has gradually fallen,  with Andrew Bailey stating he sees “strong evidence that higher interest rates were working to tame the rate of price rises”.

Today’s inflations figures, with CPI falling to 3.2% (the lowest figure in 2.5 years) was further evidence the “plan” was working. But there are still several risks which could cause setbacks; geopolitical events, domestic political events, increasing oil prices, and even the hike in the national living wage, as this may have an impact on service inflation.

However, we, like most experts and economists, expect the Monetary Policy Committee (MPC) to decrease the Base Rate at their meeting in June. While many believe this will immediately reduce mortgage interest rates, this may not be the case. In fact, postponing your remortgage, and sitting on a high SVR until after June could cost you more.


What impacts mortgage rate pricing?

Many mortgage lenders buy the funds they lend out from the money markets. The price of this money is based on SWAP rates.

SWAP rates are what lenders pay to financial institutions and corporations in order to acquire fixed funding for a specific time, typically two, three, five, and ten year rates . Several factors impact SWAP rate pricing including Monitory policies set by the central banks, such as interest rates decisions, economic conditions, economic indicators including inflation rates, GDP growth, employment data and consumer sentiment. .

When SWAP rates rise, it shows that expert economists expect interest rates to increase over the set period. Consequently, we usually see mortgage interest rates increase shortly after an increase in SWAP prices.

However, mortgage interest rates will not necessarily immediately follow SWAP rate movements . Every mortgage lender prices their product ranges differently. Some may reduce their pricing in line with SWAP rate changes, while others may maintain their products to maintain their profit margins. This means that if SWAPs rise again, they can factor for the rise in their own costs without passing this on to borrowers.

Furthermore, many lenders adjust their pricing in line with their business volumes and competition in the wider market. For example, if a lender has offered a particularly popular rate, they may increase their product pricing to reduce new business activity and maintain their service levels.

Conversely, some lenders offer lower mortgage rates to place themselves competitively in the market and attract new business. As this is usually at the expense of their profit margins, these rates are often only available for a short period. Each lender is different, and working with an expert broker makes navigating these changes a much easier process.


SWAP rate activity in 2024

SWAP rate activity this year has seen 2-year SWAP rates hovering around 4.3%, and 5-year SWAP rates at around 3.9%. However, in the last couple of weeks these rates have crept up again as a result of the increasing tensions in the Middle East. Consequently, lenders are withdrawing rates in reaction to the increases.

It’s also likely the general election later this year will impact SWAP rate pricing to some extent.

Whilst industry experts remain confident that we will see BBR reduce this summer, it’s worth noting that any one of these factors could change the market trajectory at any given moment. Having said this, with inflation figures not falling as quickly as hoped, both here and in the US, we suspect the UK, whilst in pole position on the front row of the grid, won’t be the first off the line when it comes to who cuts rates first between us, the Fed or the ECB!.

For the latest SWAP rate information, visit our money markets page.


Current mortgage rate pricing

We expect the first BBR decrease to be 0.25% to 5%. Some lenders will factor in the minor reduction ahead of the MPC meeting on the 20th of June, while others will continue to monitor SWAPs.

Ultimately, this reduction may  not make a significant difference to the mortgage pricing available, especially with so many other factors impacting pricing.

If you’re holding off securing a new mortgage rate to see what happens in June, we’d urge you to at least review the options available to you now. Many lenders allow you to secure mortgage deals up to six months before your current fixed mortgage term ends, giving you financial security against any turbulent market activity.

If rates do reduce before you complete, many lenders will allow you to switch to a cheaper product, so you won’t necessarily miss out.

Use our FREE buy to let mortgage calculator to explore what types of rates you could access.

Our expert brokers can take the stress out of your mortgage rate search. To have one of our team find the best mortgage rate for your individual needs, call us on 0345 345 6788 or submit an enquiry here.

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