The Bank of England announced a long-awaited cut to the base rate in August, with lenders subsequently confirming cuts to variable rate mortgages.
Fixed mortgage rates have also been lowered following the monetary policy committee meeting.
TSB, for example, announced reductions to certain residential fixed rates of up to 0.20 percentage points the day after the base rate was cut. Virgin Money similarly reduced some residential fixed rates by up to 0.19 per cent on August 8, followed by more fixed rate cuts on August 13.
But the 0.25 percentage point cut to the base rate had effectively already been priced into the market, says Jeremy Duncombe, managing director at Accord Mortgages.
“You saw quite a bit of movement in swap rates leading up to the base rate cut, rather than on the day itself,” he adds. “What's happened since then is the direction that's been given by the Bank of England. It's often the commentary that has the most impact on what happens to fixed rates.
“Swaps move around quite drastically sometimes, irrespective of whether base rate has gone up or down, or stayed the same. Swap rates are a sentiment of where the market feels that base rate will go over the next two years on a two-year fix, and over the next five years on a five-year fixed.
“If the market thinks that base rate is going to drop, then you see a pass through into swap rates quite quickly. Fixed rates had been dropping for about two weeks before the base rate came down a quarter of a percent.”
Indeed, before the base rate cut was announced, some lenders were already reducing fixed rates.
Among those was Accord Mortgages, which announced shortly before the base rate cut that it would reduce rates the following day (August 2) by up to 0.25 percentage points on products up to 90 per cent loan-to-value, marking its fourth reduction in the space of a month.
MPowered Mortgages, another intermediary-only lender, also cut fixed rate mortgages the day before the base rate was cut on August 1. The lender followed with more fixed rate reductions of up to 0.37 percentage points on August 5.
“In the build-up to the rate cut, the swap curve had been gradually moving down for a few days,” says Peter Stimson, head of product at MPowered Mortgages.
“So in the lead up to the BoE cut, there had been a gradual reduction in swap rates, so there was some room for us to move rates downwards.
“It was also an anticipation; we thought that the BoE were going to cut. If it didn't cut in August, we were fairly certain they were going to cut in September. So there was an anticipation from our side that they were going to cut rates.”
Figures from Moneyfacts likewise show that while the base rate remained at 5.25 per cent since August 3 2023 before being reduced to 5 per cent on August 1, average fixed mortgage rates fell by up to 1.08 percentage points year-on-year and 0.18 percentage points month-on-month.
