Nationwide says it expects the base interest rate to increase by a quarter of a percent tomorrow when the Bank of England’s Monetary Policy Committee meets.
But the lender says the widely-expected hike from 0.5% to 0.75% is unlikely to adversely influence the economy or the property market, and claims its impact is likely to be modest.
“This is partly because only a relatively small proportion of borrowers will be directly impacted by the change,” says Robert Gardner, Nationwide’s Chief Economist (pictured, below).
“The vast majority of new mortgages have been extended on fixed interest rates [and] the share of outstanding mortgages on variable interest rates – and which are therefore likely to see an increase in payments if Bank Rate is increased – has fallen to its lowest level on record, at c35%, down from a peak of 70% in 2001.”
The prediction by Nationwide comes as the lender reveals that house prices are rising by 2.5% annually, pushing up the average house price to £217,000, better than the 1% annual rise it predicted in January.
Base interest rate
Mark Readings of online estate agency House Network says: “We have had a surprisingly strong July; traditionally with the start of the school holidays and the good weather we see the market cool [and] with the World Cup thrown into the mix we were anticipating a slow month.
“Maybe the feel-good factor of both the success of the England football team and the heatwave has had a positive impact on the housing market.”
Jonathan Hopper, MD of Garrington Property Finders (pictured, right), says: “It’s tempting to see such a meandering market as the fruit of a cautious consensus. Instead it’s a by-product of the collision of three conflicting forces; pent-up demand, low supply and patchy confidence.”