Brexit forecast to stall rate hike

According to mortgage intermediaries, the continued uncertainty over the direction of Brexit negotiations has led them to expect no interest rate rise this year.

Instead, they anticipate an increase of just 0.25 per cent in the first half of 2018, if at all.

Andrew Montlake, director at London-based Coreco, said making any rate rise call was "tricky".

He said: "We do not expect it to change this year, and if it changes in 2018, then it will only be between a quarter and half a percentage point.

"Brexit is clouding everything." He said it was understandable that people may want to lock down some of these really low mortgage rates right now.

According to Mr Montlake, this is because "who knows how long these rates may be around", although he added even if the bank base rate were to move, it would be so slight that mortgage rates would still be relatively low for the forseeable future.

A 0.25 per cent increase would only put us back in the position we were in a year ago, although its symbolism would no doubt trigger borrowers to review their rates. David Hollingworth

David Hollingworth, associate director, communications, for London and Country Mortgages, said  L&C did not make official forecasts, and it was important that customers made their own decisions, fully aware of the potential impact of a base rate rise.

However, he agreed with consensus that the economic picture in the UK did not paint a likely scenario of a significant base rate rise any time soon.

Mr Hollingworth told FTAdviser: "My view would be the lower-than-expected inflation figures will see the expectation of a rate rise pegged back again.

"Although inflation dropped back it remains above target but also continues to outstrip wage growth, so households will be feeling the effects of higher costs. As a result a rate rise now may only increase that squeeze."

In a poll carried out by FTAdviser, 64 per cent of advisers said they believed there would be no change in the base rate for the rest of 2017. If a rate rise does come in 2018, 36 per cent said the rise would be minimal - possibly another 0.25 per cent.

The Bank of England's monetary policy committee is release the minutes of its latest meeting on 3 August, and Mr Hollingworth said it would be interesting to see whether there is any movement from the split in June, when three people voted for a rise and five voted to keep it at 0.25 per cent.

He added: "One point the Bank has been  consistent in making is that when a rise does come it is highly likely to be gradual. A 0.25 per cent increase would only put us back in the position we were in a year ago, although its symbolism would no doubt trigger borrowers to review their rates if they haven’t already.

"The exact timing of any changes remains very difficult to predict especially given the ongoing uncertainty around Brexit. Either way, mortgage rates are extremely low right now and borrowers would be well advised to review their options as they may be able to cut costs and protect against any increase, whenever it comes."

simoney.kyriakou@ft.com