With a number of mortgage rate drops announced by major lenders in recent months – both before and after the base rate cut by the Bank of England to 5.0%, investors are understandably delighted. Leading lender Nationwide have actually dropped their five-year fixed rate to under 4% and other have now followed.
Market watchers say this could be just the start of things to come with more rate drops expected, irrespective of what happens to the Bank of England Base Rate in the near term.
The reasons behind the recent reductions can be gleaned by looking at Mortgage Market Swap Rates (MMSRs).
MMSRs reflect the price lenders have to pay financial institutions when securing fixed rate funds, which they use to offset short-term risks associated with fixed rate mortgages. They are generally based on government bonds – Gilts – which reflect what the market anticipates will happen to interest rates down the line.
In summary, the cost of swap rates filters through to mortgage rates, whether they rise or fall, and currently they’re falling.
The background to this is that the UK economy is finally showing signs of improvement. After peaking at 11.1% in October 2022, inflation has been slowing and moved below the BoE target rate of 2.0% back in May this year (although it has then risen slightly since, it is expected to fall again with downward pressure continuing).
In response to this, The Bank of England lowered the base rate from a 16 year high of 5.25% to 5.0% at its August meeting and further base rate cuts are anticipated and being priced into the market.
However, although the first cut has now taken place, the Bank of England has made it clear that it will tread a cautious path ahead, meaning rates are unlikely to fall dramatically. While financial markets are pricing in around two more cuts before the end of the year, the latest economists expect only one. The Bank Of England Monetary Policy Committee meets eight times a year and its next meeting – which is on19th September – is keenly anticipated. The mortgage sector continues to respond in anticipation, with swap rates continuing to decline.
Swap rates fell steadily in the run up to the August rate cut (averaging a 0.22% per day decline), so a continued decline would indicate that the markets anticipate a further decline in base rates.
As mortgage rates continue to drop, now could be an opportune time for landlords and property investors in Kent to review their financing options. Whether you’re considering refinancing existing properties or expanding your portfolio, the current market conditions could offer favourable opportunities. With the Bank of England’s cautious approach to further rate cuts, acting sooner rather than later may help you secure competitive rates.
At Lifeboat Lettings, we’re committed to helping our clients navigate these changes and make informed decisions. If you’re a landlord or property investor in Kent, get in touch with us today to discuss how these rate adjustments could benefit your investments. Our team of experts is here to offer tailored advice and support to ensure your property portfolio thrives in the evolving market.
If you would like some help with any of the subjects covered above or anything else relating to properties or lettings, please email contact@lifeboatlettings.com.
