Majority of mortgage lenders expect interest rate rise in early 2015

More than one in three (36%) mortgage brokers expect a rise in the Bank of England base rate before the year is out, according to new research by the Intermediary Mortgage Lenders Association (IMLA). The findings show opinion is divided in the mortgage industry on the widely anticipated rate rise, with just 17% of lenders anticipating a hike during 2014.

The consensus among lenders is that the Bank of England will raise its base rate from 0.5% in the first half of 2015, for the first time since March 2009. Nearly three in four (72%) take this view including nearly half (44%) who expect to see a rise in Q1 2015. There is a greater split among brokers, with 44% predicting the rise will come in the first half of 2015 while one in five (20%) expect the 0.5% base rate will survive past the middle of next year.

Existing homeowners to feel the pinch the most?

The research also reveals differing opinions across the mortgage industry about which group of borrowers will be most affected when the interest rate rise finally occurs.

The majority view among lenders (56%) is that existing homeowners will be the most affected demographic, followed by aspiring first-time buyers (28%). Just -one in ten (11%) believe recent first-time buyers will feel the biggest impact.

By comparison brokers expect recent first time buyers and existing homeowners will share the brunt of the interest rate rise, ahead of aspiring first-time buyers. Both lenders and brokers agree that buy-to-let owners and landlords will be least affected by the eventual base rate rise.

Peter Williams, executive director of the IMLA, commented: "The prospect of a rise in interest rates has been looming on the horizon for some time, but now it appears an increase is hovering closely overhead. The fact that lenders feel recent first-time buyers will be spared the impact of rising rates is an encouraging sign that stress tests implemented under the Mortgage Market Review are doing their job and will ensure that borrowers are financially prepared for higher interest payments."

"Brokers will have a vital role to play in the months ahead as existing homeowners review their current deals and look to ensure they are on the most favourable rates for their personal circumstances. It's important to remember that the first rate rise in more than five - or potentially even six - years will seem like a momentous occasion when it arrives, but the size of increase is likely to be very modest, certainly to begin with. The Bank is firmly focused on cautious steps that will preserve the recovery and will guard against punishing existing borrowers."