The boss of one of Britain’s biggest lenders said it was being cautious about offering lower mortgage rates because of doubts about how quickly central banks would cut borrowing costs.
The comments from Mike Regnier, chief executive of Santander UK, came as the Bank of England prepared to set out its latest decision on interest rates today.
The US Federal Reserve last night held rates in a range between 5.25 per cent and 5.5 per cent but suggested that a cut as soon as March was unlikely.
Rates in the UK look certain to stay put at 5.25 per cent today but markets are betting they could start to fall from May and drop to as low as 4.25 per cent by the end of the year.
That has prompted a scramble by lenders to cut the rates that they offer to mortgage borrowers even before the Bank of England acts.
Caution: Earlier this month, Spanish-owned Santander bucked the trend by raising rates on a number of its fixed rate mortgage deals
Yesterday, TSB became the latest to cut borrowing costs for home buyers.
But earlier this month, Spanish-owned Santander bucked the trend by raising rates on a number of its fixed-rate mortgage deals.
Regnier told the Mail that the decision was prompted by a rise in ‘swap’ rates that are used by lenders to price mortgages.
But he was also doubtful that Bank of England rates would fall as quickly as markets expect.
‘Put ourselves in the shoes of the Bank of England, I’d want to be absolutely convinced that we had tamed the inflation beast before loosening monetary policy too materially,’ Regnier said.
‘And that’s why our central case is that monetary policy will not be eased quite as quickly as the market’s expecting at the moment.’
Regnier noted that market pricing on swaps changed from day to day and that Santander is ‘certainly expecting that interest rates will come down this year’.
But asked whether his more conservative view on interest rates was behind Santander’s caution on mortgage pricing, Regnier said: ‘Yes, probably right.’
The comments suggest that doubts about the path of rate hikes could dampen the cheerier mood around the housing market at the start of this year.
Figures yesterday from Nationwide showed that house prices rose 0.7 per cent in January compared with December as lower mortgage rates helped revive demand.
It is the latest sign that the housing market is picking up after a tough 2023.
Santander UK’s annual results showed an £11.9billion fall in mortgage lending last year, though higher rates helped it to grow annual profits by 13 per cent to £2.1billion.
Regnier said: ‘We did see quite a big fall in demand last year. Our expectation is the market will be bigger in 2024.’
Last night, the US Federal Reserve turned up the heat on the Bank of England as chairman Jerome Powell said ‘almost everyone’ on its rate-setting committee ‘is in favour of moving rates down this year’.
However he suggested a cut at the Fed’s next meeting in March was ‘probably not the most likely’.
