Interest rate rises on agenda

Nia Williams

January 5, 2010

Commenting, RICS senior economist Oliver Gilmartin said: “Mortgage approvals have now been rising consistently for a year and the latest credit conditions survey from the Bank of England continues to suggest a gradual improvement in the lending environment over the coming months.

“Lenders reported an increase in credit availability for borrowers with loan to value ratios above 75% in Q4 2009 whilst the maximum loan to value ratio rose for the first time in over 2 years. Despite an expected increase in property listings and the onset of several headwinds during 2010, the current imbalance between demand and supply is set to underpin further price gains in the near term.

“However, the more buoyant housing market allied to the pick up in economic activity, now under way, is likely to bring forward the day when interest rate rises are back on the agenda. We expect the base rate to be raised during the second half of the year which will inevitably filter through into higher mortgage rates. Significantly, the standard variable mortgage rate will be moving off a low base (currently more than 40% below historic norms) meaning that small movements in interest rates have a bigger proportional impact on monthly payments.”

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