How lenders have responded since the Bank of England's base rate hold

In just over seven days since the Bank of England’s Monetary Policy Committee played it cautious and decided to hold its current bank base rate at 4.25%, lenders have responded rapidly.

For example, Barclays reduced rates on several of its residential and green home mortgage products, while TSB lowered pricing on a range of residential mortgages, including shared equity and shared ownership loans. Coventry for Intermediaries cut fixed rates across its residential range for both new and existing borrowers, and also made reductions to its fixed rate products in the buy-to-let market.  

Newcastle for Intermediaries trimmed rates on its Shared Ownership mortgage range, Accord Mortgages cut rates across its residential new business ranges and Fleet Mortgages announced price cuts on several of its five-year fixed products across all LTV bands. Meanwhile, Nationwide has raised LTV to 95% for new build homes, bridging lender Funding 365 has raised the maximum gross LTV to 85% on its light refurbishment product, and Halifax has extended access to high LTV mortgages.

So, there’s plenty of activity. To get a sense of any emerging patterns in the marketplace, Mortgage Introducer has consulted two leading industry experts – David Hollingworth (pictured left), associate director at L&C Mortgages, and Nicholas Mendes (pictured right), head of marketing at broker John Charcol.

“Rates have bounced around all year and although generally they are lower, they nudged back up in recent months,” Hollingworth noted. “However, they now seem to have reached the point where they are settling down and finding the level. This often happens when rates take a turnabout as lenders react and then potentially find they have pushed rates up too far. They are now able to make improvements and we’re seeing a growing number of lenders looking to nibble away at rates.”

Hollingworth acknowledges that rates aren’t quite being slashed – yet. “These aren’t big cuts but the market is so competitive that lenders pass through improvements wherever they can and as more take the chance to sharpen rates, the more likely it is that others will follow,” he reasoned.

Geopolitical factors could, of course, influence the marketplace, but so far global concerns don’t appear to making too much of an impact. “The tension in the Middle East doesn’t seem to have spooked the markets and swap rates have generally eased back,” Hollingworth said. “They are, however, very flat and pricing on two- through to five-year fixed rates is looking very similar.  That suggests that the markets are anticipating that interest rates are getting closer to the bottom and are expected to stay there. Of course, with a good deal of uncertainty it’s really hard to know what could be round the corner and we know that forecasting can change rapidly.”

He added: “Lenders may continue to make some reductions although I’d expect that they will come through lots of small adjustments as things stand. Customers certainly shouldn’t be clinging on to the hope of ever lower rates and it makes sense to plump for the right deal now and then seek a review before completion to see if there is further movement in their favour.”

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How has lender pricing been affected?

Mendes views lender pricing as a bit of a mixed picture right now. “We're still seeing lenders cut rates, which ties in with recent movements in swap rates,” he said. “Both the two-year and five-year swaps have fallen quite noticeably over the past month. The two-year is now at 3.623% compared to 3.797% a month ago, and the five-year has dropped to 3.648% from 3.814%. That movement clearly explains why lenders are still making reductions.”

Generally speaking, the bigger high street lenders are better positioned to pass on reductions more quickly, Mendes observes. “Given their scale and volumes, they can operate on tighter margins compared to some of the smaller lenders who tend to be a little more cautious with pricing to avoid being caught out,” he observed. “Even so, credit where it's due, the big lenders aren't resting on their laurels. They're competing hard on price, but we're also continuing to see changes in their appetite and criteria as they look to strengthen their offerings in what's still a competitive market. That said, it doesn't feel like there's a clear direction just yet.”

While there's definitely a fair bit of volatility, Mendes suggests, markets do seem fairly confident in pricing in future Bank of England base rate reductions. “Since fixed mortgage pricing is based on swap rates, which essentially reflect where lenders think interest rates are heading, the current downward movement in swaps is giving lenders room to pass on reductions despite the wider global uncertainty,” he said. “I'd like to say that rates have probably peaked, but whether this current movement sparks another wave of downward repricing from lenders remains to be seen. Either way, I think it's important for borrowers not to become complacent. With most lenders typically allowing deals to be secured up to six months in advance, it feels very much like a time to be proactive rather than sitting back and waiting.”