Lending rates fall to “low point” in December

The cost of borrowing dropped in December, but this is likely to be the low point before they rise following interest rate hikes from the Bank of England.

In December the Bank raised the base rate from 0.1% and 0.25% – and markets expect there to be a further rate rise today.

Average ‘effective interest rates’, taking rates from the likes of mortgages and SME loans, fell by 0.16% to 6.27% in December.

Activity rose, with mortgage approvals reaching 71,015 in December, up from 67,859 the month before.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “Lenders were wrong-footed by the Bank of England’s 11th hour swithering in November, so borrowing rates dropped back.

“We can expect this to be the low point, because the eventual rise from 0.1% to 0.25% in the middle of December will feed into higher January rates.

“This will come at the worst possible time, because borrowing rose again in December. Part of this was because we shrugged off fears of an Omicron surge to make up for the Christmas we missed a year earlier.

“However, part of it was down to hikes in the cost of living, forcing more of us to turn to borrowing to close the gap.”

Richard Pike, sales and marketing director at Phoebus Software looed ahead to the next Base Rate rise.

He said: “Against many predictions the housing market continues apace, with these latest figures from the Bank of England showing that there is still plenty of appetite. The first interest rate rise in December is likely to have been a major contributing factor, spurring people on to beat the next inevitable rise.

“With the next expected interest rate rise just days away, and as our freedoms are returned, it is not unreasonable to expect this level of activity to continue.

“The main consideration for many though is our rampant inflation rate and the rising cost of living, which will certainly have an effect on affordability for some.

“This could be especially hard for first-time buyers as house prices show little sign of coming down.”

Nitesh Patel, strategic economist at Yorkshire Building Society, expects activity to slow in the coming months.

He said: “Despite rising house prices demand remains strong, though there is some unevenness in the market, with larger detached properties boasting outside space proving more popular than flats as people reassess their needs following a year of lockdowns.

“That said, there is some tentative evidence that demand for flats may have turned a corner particularly in cities outside of London.

“While demand remains strong the supply of homes for sale is still very low and, as a result, we expect activity to slow this year.

“Real earnings growth is expected to fall in the coming months however the high level of excess savings built up by some households during the pandemic will go some way to cushioning this decline.

“Furthermore, despite speculation of Bank Rate rises we still expect market borrowing costs to remain low.”

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