Brokers have said more rate cuts from lenders are likely after SONIA SWAP rates, which determine the cost of fixed rate mortgages, edged down following yesterday’s Budget.
Over the past month or so, lenders have consistently trimmed rates in an effort to stimulate a muted property market in the run-up to yesterday’s major fiscal event. But experts cautioned that rising unemployment and fragile business sentiment could impact demand even if rates edge down.
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, said that while the Budget may have battered business owners, “borrowers appear to have come through relatively unscathed. In fact, they may have reason to cheer as SONIA swap rates edged south in the aftermath of the Budget. So the rate-cutting trend of recent weeks may continue”.
He continued: “The future direction of SWAP and mortgage rates hinges on whether markets, having fully digested the Budget small print, see the fiscal measures announced Wednesday as aiding or harming the disinflationary trend.
“If frozen tax thresholds reduce disposable income and minimum wage hikes increase business costs, that could prove disinflationary. This could make a pre-Christmas cut at the Bank of England more likely, which will be a boost for borrowers.”
A rare ray of sunshine
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, also said the way markets have responded to the Budget could benefit borrowers: “If there was one ray of sunshine from the Budget, it’s that the markets have reacted positively. As a result, traders are betting on further rate cuts, which could bring down the cost of mortgage borrowing even further.
“Luckily we avoided a 2022-style meltdown on this occasion but it’s not over yet. SWAPS may be falling but unemployment is rising and sentiment in the business community has been shattered.”
Omer Mehmet, Managing Director at Welling-based Trinity Finance, was also encouraged: “SWAP rates are headed in the right direction for borrowers, which means mortgage rates could soon follow them down.
“Businesses may have been hammered in yesterday’s Budget, but for borrowers the outcome appears positive. In the current fraught climate, of course, things could change in an instant.”
Rising unemployment a threat
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said more rate cuts are now on the cards but is concerned the fragile state of the economy and sentiment after the Budget could restrict demand: “The Budget didn’t spook the markets as some feared, and swap rates sliding south yesterday suggest we might be in for more rate cuts from lenders.
“TSB has already dropped rates by up to 0.10% on product transfers and additional borrowing this morning, and if swaps keep falling, you can expect other lenders to sharpen their pencils too.
“The positive market reaction means traders are betting on further Bank of England rate cuts, which should translate into cheaper mortgage deals for borrowers.
“However, caution is warranted. Rising unemployment and decimated business confidence could dampen the property market recovery, even with lower rates.”
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said there is definitely the potential for cheaper mortgage rates on the horizon.
He added: “With Stamp Duty untouched, buyers will be back in the property market looking to find their new abode, and those needing to refinance will be buoyed by cheaper rates, many saving up to 2% on equivalent deals from this time in 2023.
“The prospect of cheaper mortgage rates is probably the only good thing to come out of the Budget yesterday.”
Photo by Samuel Regan-Asante on Unsplash
