Falling rate hike prospects will hit broker business

Mortgage brokers could see business levels decline as the prospect of an early base rate hike recedes.

Fears that the Bank of England will soon lift rates from their all-time lows have triggered a sharp rise in remortgaging in recent months but now expectations have been pushed back well into 2016.

The Bank of England held interest rates at 0.5% yesterday as expected citing fears of a global economic slowdown, led by China.

Chris Beauchamp, senior market analyst at online trading specialists IG, said a 2015 move is now a non-starter.

“Even the first-half of 2016 looks like a long shot at this stage, barring some significant upturn in the global economy.”

A new survey of mortgage brokers from United Trust Bank demonstrates how the prospect of an early base rate hike has driven broker business.

One in four brokers said that Bank of England hints that interest rates could start to increase around the turn of the year boosted enquiries in the weeks immediately after.

Harley Kagan, managing director of United Trust Bank, said: “At the start of the summer it very much appeared that the Bank of England was laying the groundwork for increasing the base rate to 0.75% by the year end.

“Since then we’ve had an economic slowdown in China, falling oil prices, a correction of our own stock market, and generally weak global growth.

“Many commentators have put back their predictions for a first increase to around the middle of 2016 rather than the start.”

Jeremy Duncombe, director Legal & General Mortgage Club, said although yesterday's inaction was no surprise, a base rate rise is inevitable at some point.

"And when it does come, it will have a significant impact on mortgage rates, even if the increase itself is quite small.”

Duncombe said banks will start to withdraw their most competitive mortgage deals once an interest rate rise draws closer.

“A borrower who is currently on their lender’s SVR and who decides to remortgage now could reduce their monthly mortgage payments by £343, equalling a saving of £8,253 over the term of their mortgage. 

“However, a borrower with the same mortgage who waits until the BBR rises to 1% would only reduce their monthly payments by £279.76 and would save £6,714.24 over the term of the mortgage.”

Duncombe added: “There is a significant difference in potential savings depending on when borrowers review their mortgage deals."