Demand for fixes likely to rocket in anticipation of base rate rise
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Demand for fixed rates looks set to soar as pressure grows for the Monetary Policy Committee to hike interest rates.
The latest figures from the Office for National Statistics show infla-tion climbed to 3.7% in December, up from 3.3% in November. The figure is 0.8% above the 12-month average of just 2.9%.
Jonathan Samuels, chief executive officer of Drawbridge Finance, says the odds on a rise in interest rate in the first half of the year have shortened considerably because of rising inflation.
He says: “There comes a point when rates simply have to be raised, irrespective of the danger of undermining the recovery.
“The property market is already facing downward pressure from weak demand and the threat of higher interest rates being intro-duced in the next few months will accentuate this.”
Last week Ernst & Young predicted inflation could near 4% by the spring, but says it is vital that the Bank of England continues to hold its nerve on in-terest rates.
Julien Holmes, chief opera-tions officer of Crown Mortgage Management, says high inflation rates can prove dangerous for a number of reasons, but the most pressing concern for home owners is that if those managing the economy lose credibility, the rates on UK government bonds are bound to increase.
He adds: “If bond rates increase, so will the cost of mortgages and the benefits of a low base rate would be lost.”
A number of lenders have al-ready started to adjust their fixed rates in anticipation of rising interest rates.
Coventry Building Society lowered a number of its rates last week and increased LTVs.
Colin Franklin, sales and marketing director at Cov-entry, says: “With an interest rate increase potentially on the horizon, fixed rate and capped tracker mort-gages are likely to be in demand.”
Roger Morris, sales and marketing director of Affirmative Finance, believes the demand for fixed rates is broker-led.
He says: “Brokers depend on rate rises for remortgage business and they are able to use the fear of interest rates rising to encourage borrowers to remortgage.”
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