13 Aug

Interest rates expected to increase

 Interest rates expected to increase

There are growing expectations that the base rate of interest could be set to increase in the near future.

According to the latest research from the Intermediary Mortgage Lenders Association (IMLA), 36 per cent of mortgage brokers are expecting the Bank of England to increase rates at some point during 2015, with 17 per cent predicting an increase before the end of 2014.

The majority believe the rate rise will come in the first six months of next year - the first increase by the central bank since March 2009.

IMLA’s research also showed that the mortgage industry is unclear on how it will affect property buyers and owners. A total of 56 per cent of brokers feel it will hit existing home owners and 28 per cent believe it will affect first-time buyers the greatest.

"The prospect of a rise in interest rates has been looming on the horizon for some time, but now it appears an increase is hovering closely overhead. The majority view across the mortgage industry is that a rise in 2015 still looks to be the most likely outcome," said Peter Williams, executive director for IMLA.

He added that the Mortgage Market Review (MMR) rules may have played a key role in helping to ensure that not all borrowers will be under pressure.

"The fact that lenders feel recent first-time buyers will be spared the impact of rising rates is an encouraging sign that stress tests implemented under the MMR are doing their job and will ensure that borrowers are financially prepared for higher interest payments," said Mr Williams.

Brokers are predicting that even if there are rate rises, they will be relatively modest as the Bank tries to balance the continuing recovery of the economy.

The Monetary Policy Committee (MPC) also opted to keep quantitative easing unchanged at £375 billion.

In last month's MPC meeting, all nine members of the body voted against any rise in the base rate of interest, but it is unclear if this agreement will remain.

The minutes for the latest MPC meeting will be released on August 20th. If any members did vote in favour of a rate rise, it would be the first time the committee has been split since July 2010.

Chris Williamson, chief economist at Markit, is expecting the minutes to reveal increased talk about a higher base rate.

"It's all about when wage growth starts to pick up: if pay starts to rise in coming months, the first rate hike looks likely in November. Otherwise, any tightening of policy can wait until next year," he told BBC News.ADNFCR-1222-ID-801741654-ADNFCR

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