CML chairman: interest rate rise to take market by surprise

Peter Hill
Peter Hill
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THE BANK of England will increase the cost of borrowing well before City expectations, according to the new head of the trade body representing Britain’s £1.3 trillion mortgage industry.

Peter Hill, chairman of the Council of Mortgage Lenders, also predicted that house prices in Yorkshire would rise by 4 per cent this year as demand for homes continues to outstrip supply.

On the Bank’s base rate, he told The Yorkshire Post: “The market implies that rates will rise before the first half of 2017. My view is that rates will rise in the second half of 2016.

“As we have now started to see a rate rise in the United States, I think we will see further rate rises and that will start to create some momentum globally.

“With base rate at 0.5 per cent for seven years in March, that is an emergency rate... I don’t believe emergency conditions exist now. I can understand that the Monetary Policy Committee is being cautious about rate rises when there is quite a bit of uncertainty.

“But I think uncertainty will always exist and if it’s not concerns about the slowdown in China, it will be concerns about other emerging markets or Europe.

“At any moment there will always be some reason not to increase increase rates but 0.5 per cent is not a normal level of interest rate and I think momentum will build into the second half this year.

“I think that’s probably a good thing to get back to more normal rates.”

Mr Hill, the chief executive of Leeds Building Society since 2011, said he could not see a return to historic norms of 4-5 per cent for quite a long time.

He added: “I would say that by 2018 we should be at 1.5-2 per cent.”

Mr Hill played down the impact that a rise in the cost of borrowing would have on indebted households, arguing that 90 per cent of mortgage holders are on fixed rates which will protect them, mortgage market conditions are competitive and wages are rising.

He said the move would benefit savers, who have been locked into low returns since the financial crisis.

His prediction at the end of 2014 that house prices in Yorkshire would rise by 3 per cent last year was proved right, at least according to property website Zoopla’s analysis of regional house prices.

Mr Hill said: “One of the overwhelming factors is the lack of property on the market. Whenever you speak to estate agents, they will talk about a shortage of instructions. There is a lack of new-build properties becoming available.

“With this absence of opportunity for existing homeowners and first-time buyers to get into the market, people are just sitting tight and just not putting properties up for sale.”

He predicted that house prices will rise by 4 per cent in Yorkshire this year and said new Government initiatives to increase supply would not be felt until 2017.

Mr Hill said he is positive about the outlook for the economy both nationally and in Yorkshire and would like to see progress made on the Northern Powerhouse initiative.

He added: “I hope that the politicians across Yorkshire and Humber are able to work together to support that initiative.”

Leeds Building Society is set to report annual results next month. Mr Hill said the mutual has grown strongly over recent years and is investing in the business.

He hired 100 new staff last year to take total headcount to 1,300 and plans to add at least another 100 more this year.

Like most lenders, Leeds has had to invest in new technology to keep up with consumer trends.

As for new entrants into the UK financial services sector, Mr Hill said the weight of regulation would make it difficult for a disruptor to shake up the market in the same way that hail-a-ride tech firm Uber has challenged incumbents in the taxi industry.

He added: “We always have an eye on the potential for disruption but it is quite hard to see where that is going to come from at the moment.”

Mr Hill said large-scale entrants such as Google and Apple are more likely to “pick off” areas like payments rather than offer full-service banking.