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Lenders set to absorb base rate rise – Oxford Economics

  • 03/11/2017
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Lenders set to absorb base rate rise – Oxford Economics
Lenders may buck fears and keep mortgage rates at current levels after the Bank of England’s Base Rate rise, economic analysis has suggested.

Oxford Economics lead economist Martin Beck suggests lenders may simply absorb the increase in borrowing costs thanks to higher spreads between commercial borrowing rates and the base rate.

Fewer homes are on variable rate mortgages, compared to a decade ago, so the affect on households will be muted, Beck predicted.

The Bank of England this week raised the base rate 0.25% to 0.5%.

In a research note, Beck wrote: “To the extent that the Monetary policy Committee’s (MPC) rise in Bank Rate translates into higher commercial borrowing costs, the effect will be softened by changes in the structure of the mortgage market.”

Lenders also removed some of their cheapest fixed rates in the weeks leading up to anticipated increase, meaning the rate hike could already be largely priced in.

But some critics believe mortgage rates are now set to jump in the coming months.

Samuel Tombs from Pantheon Macroeconomics predicted five-year mortgage deals will rise by around to 50 basis points to an average 2.4% over the next six months.

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