This Year is all about the Here and the Now

Originally published by MortgageSoup

Talk of interest rates at the moment might well be deemed off limits for most, given how uncertain the current period is, and how what was anticipated to develop as a narrative through 2025 – namely rate cuts – has appeared to be somewhat on the bark burner of late.

Over the course of the last month, swaps moved quite considerably with the markets spooked by the rising costs of government debt, plus of course wider international factors – perhaps most notably a Trump Presidency – which might deliver an inflationary hit to many economies.

That uncertainty has clearly not been helped by the UK economy continuing to flatline, with promised growth failing to truly materialise, and with some future decisions particularly around National Insurance increases for businesses, not yet feeding their way into pricing and therefore inflation.

If there’s an element of confusion about what this might mean for mortgage rates, then I’m certainly not surprised.

In the residential space, while we have seem some of the larger lenders moving against the swap rate grain, so to speak, and actually cutting rates in January, the has been retrenchment in recent days, and there have effectively been no rate cuts in the more specialist spaces, such as buy-to-let.

To their credit, lenders have – for the most part – kept their powder dry up until very recently sustaining rate levels even with swaps moving upwards fairly substantially, but this clearly isn’t going to last forever, and we’re already seeing rates being inched back up.

And yet…even on the day I write this, we’ve had some potentially more positive news that may just halt these rises. In this week alone we’ve had news of a dip in inflation, down from 2.6% to 2.5%, plus GDP also rose in November albeit by a very slim 0.1% margin – lower than many analysts were anticipating.

Both combined appear to make the case stronger for an immediate Bank Base Rate (BBR) cut, or at least when the MPC next meet on the 6th February. Again, as I write, a member of that MPC, Alan Taylor, gave a speech saying that we had “made it to the last mile on inflation” and “it’s time to get interest rates back toward normal”.

The big question, of course, is what is now normal? Well, Taylor believes rate cuts of 1.25% to 1.5% over 2025 might well be justified, which would clearly take us down into the realms of 3.25/3.5%.

If that feels a little punchy, then I’m not surprised, because only days ago, the markets appeared to shift from four BBR cuts to potentially only two over the course of this year, and the mood music was playing its ‘higher for longer’ piece.

Have things shifted so dramatically, so quickly? It’s clearly hard to make any assumptions, or indeed predictions, because there is always the potential for swift change, not forgetting the fact that time is often also needed to ascertain the true cost of funding, and what that means for individual lenders and their price points.

We, for example, have prided ourselves on being there or thereabouts on buy-to-let pricing over the course of 2024 and will continue to be so during the year ahead; this has much to do with our funding, but we are also not immune from what is happening around us, particularly in terms of the reaction required to shifts in swaps and what other lenders subsequently do.

So, as things appear to be swinging one way and then the next, it’s imperative to recognise what is available in the here and now, and certainly for advisers dealing with buy-to-let landlords who have immediate wants and needs, to advise on what the market has available for them in this instant, rather than potentially waiting for rate reductions or further shifts that might never materialise.

It is probably an unwise move for clients to think too much about product rates and criteria which are yet to appear. Instead, focus on the most appropriate/suitable/cost-effective mortgage option for them right now, with the understanding that if there are shifts, and they’ve yet to exchange/complete, then as a good adviser you’ll be able to keep an eye on this and move them where appropriate.

The likelihood is these rate back and forths, ups and downs, swings and roundabouts, how ever you might want to couch them, will continue, because that is the nature of our marketplace. Rate certainty is simply not a factor at the moment – especially at the ultra-low levels we were fortunate to see in that pre-‘Mini Budget’ decade.

Normal is what normal is today, and there’s no guarantee this will shift in one direction, or the other. This year is all about the here and now for advisers and their landlord clients – waiting to act feels like a fool’s errand, and might actually see them in a worse position than the one you could have achieved for them. And no one wants that.