Rate cuts are a positive story for advisers

In the end, the decision to cut Bank Base Rate (BBR) by the Bank of England’s Monetary Policy Committee (MPC) felt like a real surprise, even if inflation had been at target for two months and there was plenty of data to back the decision up.

Perhaps it is because we have spent so long watching BBR rise, and then be held at the 5.25% level, that a cut was always going to be a surprise when it came, even if the environment seemed right for it.

The closeness of the vote however – 5 to 4 – suggests we were right to think it was never a ‘done deal’, and looking forward, it does appear to show that we can’t necessarily think we are going to see multiple rate cuts in the manner we saw BBR raised multiple times in quick succession.

It would, for example, certainly feel like a surprise to see BBR cut again at the next meeting of the MPC, which will happen on 19th September; although if inflation remains at or below its 2% target, what arguments might be provided if the Committee doesn’t?

For those who don’t have the MPC meetings in the diary, then drop a line in for the 7th November and the 19th December, as these are the dates for the rest of 2024.

What price a pre-Christmas cut to finish the year on something of a ‘high’?

What we were already seeing just prior to the rate cut announcement, and what we have seen since, is lenders starting to react in terms of pricing.

Perhaps, not just the BBR cut or the dip in swaps, but also a reaction to business levels in the first seven months of the year, and a need to get on the front foot in terms of securing business for the rest of 2024.

Hence we did have some headline-grabbing rates, perhaps none more so than the first below 4% deal from NatWest.

A number of advisers have, perhaps understandably, raised some concerns about NatWest’s decision to only offer its 3.97% 5-year fix via its digital-only channel, asking whether this truly fits the Consumer Duty definition of providing a positive outcome to borrowers who want advice, but clearly can’t access this product as a result.

Almost immediately, HSBC undercut this rate, with its own 3.92% fix, before NatWest cut its rate again. It makes it an interesting scenario for advisers in terms of how they approach such deals, and perhaps also makes this an interesting ‘test case’ for the regulator.

I can certainly understand the frustrations advisers have with a dual-pricing approach such as we’ve seen here, especially when there has seemingly been so little of this in recent times.

It also makes me ask the question once again about how advice is valued, not just by lenders – that we might add get the vast majority of their business through advisers – but also how the regulator walks this particular line when it comes to borrowers potentially having to pay more, simply because they wanted professional advice and the protection it affords.

Let’s not forget that it’s not just the rate of a product that advisers will be considering but the overall cost including fees.

For example, in this specific case, it may well be that borrowers seeking lower loan amounts would be financially better off choosing a product with a higher rate and a lower fixed fee. But clearly, a borrower going direct without any adviser interaction is not going to be told this – which in itself makes the case for advice even more compelling.

We know the Financial Conduct Auhtority (FCA) has wanted to ensure consumers have access to mortgages through different channels. In such circumstances, though, doesn’t it feel like it is under pressure in an environment where going down one channel gives up access to such advice, and in doing so, loses access to the Ombudsman and Compensation Scheme, loses access to a channel which looks at wants and needs in the round, loses access to potentially life-changing decisions around, for example, protection needs, and loses access to other, potentially more suitable, options from other lenders or providers?

I appreciate this is a well-worn argument, but perhaps not challenged yet in a relatively new Consumer Duty environment, and one that I’m sure advisers – and their clients – would want to hear about, particularly how this pricing or distribution approach meets the higher requirements that are now expected of all within financial services.

What happens next, rate-wise, will also be of much interest to all stakeholders? Will we see a similar situation to the end of last year or start of this, with multiple and repeated changes as lenders jump over themselves? We’ve also seen some of this already.

Or will we see the real shake-up in September after the holiday season is over? Or will the big moves happen at the next BBR cut, whenever that might be?

Certainly, even without the disappointment of this dual-pricing news, rate cuts are a much more positive mortgage story for advisers to sell, particularly to clients coming up to maturity – of which there will be many in the months ahead.

Good news like cuts should not be hidden under a bushel – I expect all advisers to be leading with them as they seek to communicate by those most likely to benefit.