Market unlikely to be impact by small rate rise - even if it happens

Experts suggest that a possible interest rate rise this morning - if it is backed by a majority of members of the Bank of England’s Monetary Policy Committee - will have minimal impact on the housing market.

“The proportion of borrowers directly impacted by a rate rise will be smaller than in the past, in part because the vast majority of new mortgages in recent years were extended on fixed interest rates” explains Robert Gardner, chief economist at the Nationwide.

He says the share of outstanding mortgages on variable rates - and which are therefore likely to see an increase in payments if the base rate is increased - has fallen to a record low of about 40 per cent, well down from a peak of about 70 per cent in 2001.

“Moreover, a 0.25% increase in rates is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an increase of 0.25 per cent would increase monthly payments by £15 - equivalent to £180 per year” he adds.

A statement from Commercial Trust, a lender, gives the likely picture for the buy to let investment sector.

It says: “If interest rates go up in order to counter inflation, anyone looking to apply for a new mortgage, is likely to find that they have to pay more interest than they would have if they had applied before the interest hike. For many other existing mortgage borrowers who are not protected by a fixed rate deal, monthly payments could go up.

“For those on a tracker rate the rate will automatically increase and it is almost inevitable that the same will happen for those on a variable rate. For buy to let landlords with an existing mortgage, unless you are locked into an existing fixed rate, a mortgage rate increase from the lender may result in more expensive monthly mortgage repayments.”