The statement from the Bank of England noted: “All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.” It added that it expected two further rises of 0.25% in the next two years.
Governor of the Bank of England Mark Carney has been signalling a rate rise since August this year and markets put the likelihood of a rise at 90%.
Savills head of residential research Lucien Cook said he expected the first Bank of England Base Rate rise to be symbolic in nature.
Speaking at the publication of the property company’s five-year forecast, Cook said the move also gave the bank some wriggle room in case it needed to cut rates again if the economy were to need a boost.
He noted that many borrowers were insulated from any rise by being on fixed-rate deals or having gone through the stress testing regime enacted by the Mortgage Market Review.
Lenders will pass on rise
Coreco director Andrew Montlake said the MPC had no choice to act in order to maintain credibility after its warnings and noted that it may have also been to provide an extra buffer in case the bank needed to cut rates again should the Brexit negotiations fail to provide an unsuitable outcome.
He added that the firm expected lenders to pass on the full increase to borrowers almost immediately.
“But with an increased number of mortgages now arranged on a fixed-rate basis, the impact will not be as intense as it could be,” he said.
“Speculation of this move has also meant that this rate rise has already been priced in by markets, resulting in many lenders already having increased their fixed-rate offerings over the last couple of weeks, however the competitive pressure that exists in the mortgage market looks set to continue for the foreseeable future which will keep the market competitive.
“For any borrower still on a variable rate or coming to the end of their current product term it makes sense to review their options sooner rather than later,” he added.
Credibility risk
MPC members Ian McCafferty and Michael Saunders had already voted for a rate rise at earlier meetings and Carney, Andy Haldane and Gertjan Vilieghe appeared minded to raise rates from speeches in the last few months.
“When it comes to monetary policy, talk matters almost as much as action,” said Kallum Pickering, senior UK economist at Berenberg. “Now that the market is ready and waiting for a hike this week, the BoE would risk a major hit to its credibility if it did not meet this expectation.”
Yesterday, Nationwide confirmed it will push up variable mortgage rates if the Bank of England raises base rate today pre-empting a possible increase.
A spokeswoman for Nationwide told Mortgage Solutions it wanted to give its customers certainty for the future, amid growing speculation that rates would rise and the lender simultaneously cut fixed rates for existing customers by 0.5%.
The lender has confirmed that variable rate mortgages, including its Standard Variable Rate (SVR) will go up by 0.25% from 1 December after a rate rise.
