Leading lenders scrambled to slash mortgage rates today as gilt yields fell sharply after the US Federal Reserve pencilled in at least three cuts next year.
HSBC, Virgin Money and TSB were among big high street names pushing through pre-Christmas reductions in the price of their fixed rate homes loans in a boost for property buyers.
More cuts from lenders are expected over the coming days as the mood in the markets shifted rapidly from fear of a prolonged period of high rates to exuberance in anticipation of sharply falling borrowing costs next year.
The Bank of England is widely expected to leave its benchmark rate unchanged at 5.25% for the third consecutive meeting of the Monetary Policy Committee today. However, City markets are now pricing in a 50% chance of a first cut by the Bank as soon as March with five quarter point cuts — bringing the rate down to 4% — expected by the end of 2024.
Meanwhile the yield on two year gilts fell 19 basis points today to 4.16%, while the five year yield stood 3.68, also down 19 basis points. In the summer the two year hit 5.5% and the five year almost breached the 5% mark as the markets anticipated interest rates staying “higher for longer” to conquer inflation.
The dramatic change in sentiment came after Fed chair Jerome Powell last night lit the blue touch paper under financial markets with comments saying that a discussion of cuts in borrowing costs was coming “into view.”
That sent the Dow surging 1.4% to a new record close of 37,090.24 while two year treasutry yields dropped 30 basis points.
The Fed left its policy rate unchanged at 5.25 to 5.5% for the third consecutive meeting, but signalled cuts of 75 basis point next year.
Ellie Henderson, economist at City investment bank Investec said: “In the absence of an unexpected shock, last night all but confirmed expectations that 2024 will be the year of the cuts.”
Russ Mould, investment director at brokers AJ Bell said: “ While the market was already pricing in rate cuts from 2024, investors welcomed Powell’s comments with open arms. Having it spelt out was music to their ears.
“The market has been waiting a long time for this pivot in monetary policy and it’s finally come... The attention now shifts to when we could see rate cuts and it looks like May could be the magic moment.”
The latest round of mortgage rate reductions from HSBC and Virgin Money came into force today.
Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown said: “Lenders have already started cutting mortgage deals on offer given the markets revision of rate expectations, which will come as a relief for anyone facing the unwelcome prospect of finding a new deal, with HSBC and Virgin money announcing reductions.
“These are still small incremental steps down given how high rates have shot up, and big leaps down are still unlikely until the majority of policymakers vote for cuts. Estate agents are starting to have a bit more spring in their step.”
