Your mortgage is about to get a summer break

As predicted here, mortgage rates have started falling. Barclays, HSBC and NatWest have all taken out their shears and cut their prices.

We are seeing something that has been no more common than an electioneering politician being honest with voters – genuine good news for borrowers.

The downward shift applies to fixed-rate products; the two- or five-year deals which are the most popular among the UK’s hard-pressed corps of homeowners and prospective homeowners.

Those currently remortgaging are still coming off cheap-as-chips deals taken out when base rates were near zero and there was no expectation in the City that this would change. Rates starting with the number two were easy to find at this time.

Things are very different today – and people remortgaging have found themselves hundreds of pounds a month worse off. First-time buyers have to contend with high house prices, pricey mortgages and a (relative) lack of availability.

So it’s not exactly fun out there. But, as Tesco likes to say, every little helps. Days after the average first-time buyer’s monthly mortgage repayment exceeded £1,000 for the first time, three of the biggest lenders – HSBC, Barclays and NatWest – have cut their base rates ahead of an anticipated interest rate cut by the Bank of England. Last week, it decided to keep rates at 5.25 per cent – but, as inflation tumbles, it won’t be for much longer.

What’s behind the banks’ sudden conversion to the cause of cutting prices? In short, the interest rate swaps market in the City – which governs the price of fixed-rate deals – has taken a downward turn.

It actually started to move at the end of May. But lenders largely sat on their hands, partly because we are in the middle of an election campaign, with all the attendant uncertainties that come with it – but also partly because moving slowly to cut prices boosts lenders’ profit margins. This is why that Nationwide advert makes the joke about “banker” being spelt with a “W”.

What’s changed is that everyone thinks they now know the result of the poll – a Labour win with a good to very good majority. They’re broadly comfortable with that, and feel it minimises the level of uncertainty. They also know Rachel Reeves – who has worked in the City and done the cocktail circuit – and are broadly comfortable with her plans. This has boosted confidence.

I can’t claim all of the credit, or even most of it, for predicting better mortgage deals. The gold star goes to mortgage guru Nick Fuentes, from broker John Charcol. Fuentes now thinks, and I agree, that HSBC’s move will fire up the market and lead to more cuts.

Lenders typically move in packs. If a big one acts (and, with HSBC, Barclays and NatWest, you have three big ones), the others tend to quickly follow – not least because they know they stand to lose valuable business if they don’t.

Could we even see – whisper it – a price war? Let’s not get ahead of ourselves. But there would seem to be room for the more aggressive lenders to snatch market share if they feel so inclined. Fuentes expects them to “escalate their strategies significantly over the next few weeks”.

Signs of inflationary pressures and/or wage rises easing in the regular flow of economic data would help a lot. This would drive the belief that interest rates will be lower over the medium term, which is what drives the swaps market. Be aware, however, that the converse is also true.

The rate-setters on the Bank of England’s Monetary Policy Committee (MPC) will have a say in this, too. They could easily spoil the party.

Fixed-rate mortgages aren’t directly linked to base rates, by contrast to variable-rate home loans, whose holders would get an immediate shot in the arm from a cut. However the MPC’s decisions play a vital role in the market’s functioning. An early cut would improve its sentiment. It would tell the market that it has called this right and the worst is, indeed, over.

Fuentes thinks a five-year fix at something below 4 per cent is the “next milestone”, and he is optimistic that it could come quite soon. I’m not quite so sure.

What we do know is that the MPC will come out of its purdah when the election result is known. Members will be free to give speeches, attend events and let us know their thinking.

What their most recent set of minutes told us was that external member Swati Dhingra and deputy governor Dave Ramsden were the cutters in a 7-2 vote. They also highlighted a division among those who opted to hold. A hawkish group was wary of moving too soon, which I think we can safely say included Catherine Mann, Jonathan Haskel and, I suspect, Megan Greene, all of whom are external appointees.

The people to watch going forward are our potential swing voters: governor Andrew Bailey, his two other deputies, Sarah Breeden and Ben Broadbent, and chief economist Huw Pill. Hints that they are leaning towards a “cut” will be seen as good news.

While I now think September’s MPC meeting is when we will most likely see a move downward, a large part of the City is excited about August. Fuentes has a rather nice graph attesting to the poor record of forecasters in the Square Mile on this front. However, he identifies “a nice little change in commentary from all the doom and gloom we’ve been hearing”. And I wouldn’t disagree with that.

The outlook for Britain’s hard-pressed borrowers is finally looking a little brighter. Here’s hoping the economy plays ball.