Despite another base rate rise by the Bank of England in August, and the expectation by many of a further increase in October, in recent weeks most lenders have started to cut fixed rates.

Spicerhaart joint chief executive John Phillips says one of the biggest drivers of the repricing has been the fall in inflation, to a lower-than-expected 7.9% in July.

Phillips, who is responsible for Just Mortgages — which has more than 650 advisers across the country — says this has had a “massive impact” in stabilising swap rates.

“This has allowed lenders the opportunity to chip away at rates — some by as much as 0.75%,” he adds.

Google searches for ‘When will interest rates go down?’ have risen by 487% in the past year. Borrowers are awaiting the right time to swap rates

This is a view shared by Landbay founder and chief executive John Goodall, who thinks falling inflation and swap rates mean interest rates will not hit 6% or above, as some economists are predicting.

“Swap rates have drifted downwards from their early July peaks of around 5.27% for five-year swaps. As of today [24 August] they are just under 4.8%,” he says.

“The main reason for this is that recent data on the broader economy suggests growth in the economy is weakening.

“This means it is likely that inflation will continue to fall and thus interest rates may not need to peak at or above 6%, and/or we may have a pause in interest hiking.”

John Charcol senior technical manager Ray Boulger says there is a misconception that the Bank base rate is the main factor for lenders when reducing rates.

We should expect lenders to remain competitive in their pricing

“Although many potential borrowers will have seen the news that the Bank of England base rate has increased, and the speculation it will rise further, most don’t realise that the mortgage rates which actually matter to most people are not directly linked to the base rate and have in fact fallen,” he says.

The question is, how viable is it for lenders to continue to reduce rates, and how much longer are we likely to see this trend?

Phillips says: “Across our national broker network, we’ve been seeing regular correspondence from lenders announcing rate reductions.

“While the question of financial viability is one for the lenders, my view is we should expect rates to continue to improve, but not fall significantly.

When rates started falling it ceased to be bad news and so was no longer reported by the consumer media

“Instead, they will continue to stabilise back to the ‘new normal’ that borrowers are adjusting to.

“Nevertheless, our message to brokers is clear: after plenty of doom and gloom from all angles, this is a fantastic opportunity to reach out to
customers and clients to share this positive news.”

Phillips adds: “We mustn’t forget that lenders have their own targets and need to lend to make money.

“That’s especially true as many have left the high street and now rely on brokers for their business.

“The good news for the consumer is that lenders have money to lend and plenty of competition for new business.

Consumers are still willing to borrow if they can find a product that works for them

“As the picture continues to improve and the Bank of England hopefully finds the confidence to halt its rate-rising strategy, we should expect lenders to remain competitive in their pricing.”

But has all this led to an increase in activity from would-be buyers looking to lock in?

Not according to Boulger,  who says the Southampton-based independent broker has seen “no noticeable increase in buyer activity” despite recent rate reductions.

He believes this is, in part, because of the way the mainstream press has reported the issue.

“When the cost of fixed rates was rising, the new rates for two-year and five-year fixes were part of the daily TV and radio news agenda,” he says.

“But when rates started falling it ceased to be bad news and so was no longer reported by the consumer media.

We mustn’t forget that lenders have their own targets and need to lend to make money

He adds that, although there has been no increase in activity, some buyers are getting a “pleasant surprise” when presented with rates significantly lower than they were expecting.

Primis proposition director Vikki Jefferies says that, with August being a notoriously quiet month for the market, it is hard to gauge what impact the rate reductions have had on activity.

However, she thinks it is likely that many homebuyers will be looking to lock in rates ahead of expected further interest rate rises in the fourth quarter of the year.

“While affordability in the market clearly remains a challenge, demand from both first-time buyers and second-time purchasers is still there, and consumers are still willing to borrow if they can find a product that works for them,” she adds.

Most borrowers don’t realise that the mortgage rates which actually matter to most people are not directly linked to the base rate and have in fact fallen

“Activity is also being supported by those looking to remortgage or product transfer.

“Recent research showed that Google searches for ‘When will interest rates go down?’ have increased by 487% in the past 12 months.

“This shows the number of borrowers waiting for the right time to move to a new rate.”

This article featured in the September 2023 edition of MS.

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