Rate rise will barely affect borrowers

Mortgage Introducer

July 17, 2015

Carney hinted that base rates will rise at the end of 2015, although he also said the new normal for rates will likely stand at half the historic average of around 4.5%.

Tyler said: “If we see a rate rise next year, those on tracker loans will be hit straight away but many other people may not be affected – at least initially.

“Competition in the mortgage sector is so intense, with so many new entrants vying for market share, that we may find that the first rate rise is hardly passed on at all by many lenders.

“Remember, most lenders’ standard variable rates are already at over 4%, which is miles above the level of the base rate at just 0.5%. So we may not see much movement at all, even after a rate rise.”

Samuel Tombs, senior UK economist at Capital Economics, agreed that most borrowers won’t feel much of a sting when rates rise.

He said: “A large number of households in the last few years have taken out mortgages at fixed rates so I think there’s a bit of breathing space.

“Households won’t see an immediate impact on their debt repayments and it should be a gradual increase.

“There’s reason to think borrowers aren’t as sensitive as they were before the crisis when a number were on variable rates.”

Tombs was also cynical about Carney’s hint of a 2015 base rate rise. Tombs forecasted an increase of 0.25% in the second quarter of 2016 and another 0.25% increase in the fourth quarter, bringing base rates to 1% by the end of 2016.

He added: “Mark Carney has changed his mind before. He’s emphasising that the decision is going to be data dependent and it’s going to depend on how things turn out in six months.

“It sounds like he’s still a long way from considering raising interest rates.

“I think we might see one or two MPC members vote to raise the rates soon, but I don’t think the governor is one of these people until the end of this year.”

Tombs indicated that wage growth will increase over the next three months, while he reported “encouraging signs” for productivity in the second quarter of 2015.

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