Bad news could be good news for home buyers
UK mortgage brokers head into the winter selling season with something they have not enjoyed for some time: a central bank that looks closer to cutting rates than raising them.
A run of weak labour market figures has sharpened expectations that the Bank of England will trim Bank Rate from 4 per cent at its December meeting, offering a glimmer of relief to borrowers after two bruising years of tightening. Markets are now treating a cut as more likely than not, though the decision is still finely balanced and the economic backdrop is hardly comforting.
Jobs data pile pressure on the Bank
The latest figures from the Office for National Statistics show the unemployment rate rising to 5 per cent in the three months to September, up from 4.8 per cent previously and the highest reading since the pandemic period. Wage growth is cooling too: regular pay excluding bonuses rose 4.6 per cent on the year, while private sector regular pay slowed to 4.2 per cent.
READ MORE: Brokers: "It's looking encouraging" as Bank holds base rate at 4%
Those numbers arrived alongside further evidence of faltering hiring. Revised tax data show payroll employment has fallen by 180,000 since last year’s Budget, according to the Financial Times, with provisional figures pointing to further declines in October. Taken together, the data present a picture of a labour market that has shifted from tight to fragile. Nye Cominetti of the Resolution Foundation summed it up starkly: “The UK labour market is weakening on all fronts.” He urged the chancellor “to protect workers from more pain in her upcoming budget and avoid adding further costs to employers.”
For a Monetary Policy Committee that has said it needs “clearer signs” that domestic inflation pressures are subsiding before easing policy again, slower pay growth and rising unemployment are exactly the kind of signals it has been waiting for.
Market odds move towards a December cut
Investors’ reaction has been swift. Swaps markets now imply roughly a three-in-four chance of a 0.25 percentage point reduction in December, up from closer to 60 per cent before the jobs release. One rates strategist at TD Securities went further, saying: “This report pretty much locks in a December cut.”
Gilts have rallied on the shift in expectations. The two-year yield, which is particularly sensitive to interest rate prospects, has fallen to its lowest level since the summer of 2024. Housebuilders have also been quick to respond: Berkeley, Persimmon and Barratt Redrow all traded higher after the data, buoyed by hopes of lower borrowing costs feeding through to mortgage rates.
For brokers, the move in gilt yields is more important than the share price bounce. Cheaper government borrowing tends to drag down swap rates, and thus the cost of funding fixed-rate mortgages. Several lenders have already shaved pricing in anticipation of easier policy ahead; more could follow if the mood music from the Bank remains dovish.
Signals from Threadneedle Street
The MPC left Bank Rate unchanged at 4 per cent in a narrow vote last week but signalled that a cut could come soon if the disinflation trend holds. The governor, Andrew Bailey, has struck a notably two-handed tone: on one side voicing concern that wage growth could “plateau” at too high a level, on the other warning of the risks around rising job losses.
In its latest forecasts the Bank expects unemployment to peak at a little over 5 per cent in the second quarter of 2026, implying more pain to come for the labour market even if policy begins to loosen.
External commentators are split on how quickly the MPC should move. Yael Selfin of KPMG UK argues that “today’s data strengthens the Bank of England’s case to resume cutting interest rates next month, as moderating wage pressures and a softening labour market are expected to bring wage growth closer to levels consistent with the inflation target by the end of the year.” She adds that “private sector pay growth, the Bank’s preferred measure, is also anticipated to fall further with more people in the labour market seeking work, weakening workers’ bargaining power.”
Others urge a little more caution. Investec economist Ellie Henderson notes that “pay growth in excess of 4 per cent is still above what would be deemed consistent with the Bank of England’s 2 per cent inflation target,” and points out that the Bank will receive additional evidence from its Agents’ survey of 2026 pay settlements just before the December meeting.
What it all means for mortgage brokers
For the intermediary market, the question is less about the precise timing of the first cut and more about the direction of travel through 2026.
Interest-rate futures now price in around 65 basis points of easing by the end of next year, compared with 55 basis points before the latest data. That suggests Bank Rate somewhere in the mid-3s in twelve months’ time if the current path is realised – still far above the era of ultra-cheap money, but noticeably softer than today.
In practical terms:
• Fixed-rate products could edge lower in the coming weeks as swap rates adjust, particularly at the two- and five-year tenors.
• Remortgage customers rolling off older, very low deals will still face payment shocks, but less severe than feared a few months ago.
• Purchase activity, especially in the new-build sector, may get a modest lift if lenders pass on cheaper funding.
Yet brokers should be wary of over-promising. The Bank remains uneasy about underlying inflation, and a surprise uptick in pay or prices could see policymakers pause again. The looming Budget on 26 November also hangs over the outlook: further tax rises, particularly on employment, could weigh on growth and complicate the policy trade-off.
Balancing opportunity and risk
The temptation for borrowers will be to wait in the hope of cheaper deals in the spring. Brokers will need to help clients weigh that instinct against the risk that the MPC hesitates, or that market expectations swing back, nudging swap rates higher again.
One message does seem safe enough: the peak of the rate cycle is past, and the debate is now about the speed of decline, not whether cuts will happen at all. As Hargreaves Lansdown analyst Matt Britzman put it, lower wage growth “fuels hopes” that more easing is on the way.
For an industry that has had to deliver tough news to homeowners for the best part of two years, the prospect of a gentle tailwind – however uncertain – is not to be sniffed at. But the labour market numbers also underline how fragile the wider economy has become. Cheaper money may be coming, but it will arrive against a backdrop of rising joblessness and tighter household budgets.
Mortgage brokers, more than most, will have to navigate both sides of that story: the welcome drift down in rates, and the growing number of clients whose employment prospects are less secure than they were when they first picked up the keys.
