Council of Mortgages Lenders predicts first rate hike to be postponed until 2017

In its Market Commentary November 2015 published this week, the Council of Mortgage Lenders (CML) states that the UK may not see its first rate hike until 2017, and estimates that gross mortgage lending was £21.8 billion in October: nearly a fifth higher than a year ago.

While the report states that the economic picture for the UK continues to be relatively positive and that household incomes this year are experiencing their strongest growth in real terms since the crisis, it goes on to say that:

“Concerns about global prospects have materially lowered market expectations for interest rates in just a few months.”

The Bank of England’s monetary policy committee’s (MPC) projections are based on the market-implied path for bank rate, and this now suggests a much more gradual pace of monetary tightening than it did in August.

“In the face of global weakness, the MPC judges that domestic demand needs such support to eliminate any remaining spare capacity in the UK economy, and to bring consumer price inflation back up to its 2% target in two years,” the report states.

“Near-term housing sentiment will be boosted by the prospect that the first quarter percent rise in UK rates may be delayed until the second quarter of 2017, compared with the estimate of the third quarter of 2016 just a few months ago.”

Turning specifically to mortgages, CML’s commentary highlights that fact that mortgage lending is now enjoying its strongest spell since the financial crisis, and that annual growth in mortgage balances reached 3% for the first time since gross lending hit £23.6 billion in July 2008.

In a separate report the CML estimates that gross mortgage lending was £21.8 billion in October, 8% higher than September’s lending total of £20.1 billion. In addition to the month-on-month rise, lending rose 19% year-on-year, from £18.4 billion in October 2014.

Bob Pannell, chief economist, at the Council for Mortgage Lenders said:

“As lending in the regulated mortgage space picked up over the summer months, the pace of recovery has improved. This looks set to continue over the closing months of the year with the factors helping support this recovery continuing to be low inflation, strong wage growth, an improving labour market and competitive mortgage deals.

“As a result lending this year is likely to exceed our forecast of £209 billion, though affordability pressures will limit business volumes for first-time buyers and movers meaning that we think the market has only modest further upside potential over the short-term”.

The CML has attributed the pick up to the fact that mortgage lending is becoming more broadly based, following several months of year-on-year growth in lending to first-time buyers, movers and remortgage customers.