Has the direction of Bank Rate become the 'dead donkey'?

I wish I could tell you with any certainty what is coming over the horizon but, judging by what has happened already this year, even my wildest imagination might not be able to conjure up how things will progress. Perhaps, it is far better to stick closer to home in terms of both the mortgage and housing market which, even if it too remains uncertain, appears far easier to get to grips with than what is happening in world politics right now.

In that sense, and given the enormity of those two news stories, it has been rather interesting that even big industry events have been majorly overshadowed so far this year. Take for instance, the ongoing debate about interest rate levels and, in particular, the future direction of Bank Base Rate – one can’t help feel that this is currently the ‘dead donkey’ of that famous news coverage maxim; whereas previously it has been the subject of great debate and prediction, now it seems to be way down on the news agenda.

Why might this be? Well, without wishing to do the work of the MPC a dis-service it all – at least right now – appears rather irrelevant, not just in a head-to-head with Trump and Brexit, but also in terms of what the mortgage market and, in particular, lenders are currently doing. Even when the Bank’s Governor, Mark Carney, suggested earlier in January that the next BBR move was just as likely to be down as up, there was barely a murmur of industry chatter.

That’s because, certainly when it comes to lender’s pricing, BBR does feel rather superfluous. Undoubtedly we’ve seen a big push for business in these first few weeks of 2017 and much change in terms of price cutting in order to secure it, but (once again) BBR was kept at the same 0.25% level in January and – watch me eat my words soon – it doesn’t appear to be changing in the short-term.

Indeed, the NIESR (National Institute of Economic and Social Research) kicked off February by suggesting the MPC wasn’t likely to change BBR until the middle of 2019, and only after this would it increase it by on average 50 basis points each year. This flies in the face of many commentators who last year predicted that, due to increased inflation throughout the next 12 months and beyond, the MPC might feel it has to act sooner rather than later. Although, as Carney himself suggested, the Committee might be willing to see inflation above its 2% target for a much longer period than it ordinarily would feel comfortable doing, as increasing might impact negatively on economic growth and employment levels.

Whatever the MPC does next in the months ahead, for advisers I suspect there is not going to be a culture change when it comes to what lenders are doing at present. One wouldn’t say there is a ‘bun fight’ for volume amongst mainstream lenders seeking lower-risk, prime business but there is certainly competition aplenty if your clients have sufficient deposit or equity levels. One might also think, given the anticipated fall back in buy-to-let lending, that underserved clients – a phrase used far too much – are also going to benefit as lenders who could once rely on significant buy-to-let margin have to go looking elsewhere.

Whether by ‘underserved’ we can count in those with small amounts of deposit/equity remains to be seen. The 95% LTV market is down somewhat since the demise of HTB2 but again, will we see lenders eyeing this borrower type in order to make up for what they’ve lost from landlords? Certainly, we might anticipate greater 95% LTV product numbers in the weeks ahead and perhaps the much-touted Government rebalance of the mortgage market in favour of the first-time buyer will start to appear. We won’t predict but it would be nice to see this sort of certainty and stability delivered to the mortgage market throughout 2017.