This afternoon’s decision by the Bank of England to raise UK interest rates to 0.75% was widely expected due to inflation reaching its highest level in 30 years and the financial uncertainty caused by Russia’s invasion of Ukraine.
The Monetary Policy Committee voted 8-1 in favour of raising the rate today from 0.5% to 0.75%, the third consecutive increase and a move by the bank that will likely worry those on SVRs or approaching the end of their mortgage term.
As you would expect, the property industry was quick to react. Here’s what they’re saying:
Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, said: “Given the rising costs of living, including the increase in the energy price cap, rising prices and the tax increases coming in next month, alongside the uncertainty the Russian invasion of Ukraine is causing, the Bank Rate increase will be unwelcome news for many.
“It is helpful that eight in ten mortgage holders are on a fixed rate as these people will continue to pay the same each month until their fixed-rate period ends. The 20% on variable-rate mortgages are likely to see their payments rise, but whilst this is the third rate rise since December, the increase in their mortgage payments will be modest.
“Lenders are sensitive to the rising number of people facing a squeezed household budget and we hope the Chancellor will provide some additional support to households in his Spring Statement next week. Anyone who is worried about their ability to pay their mortgage, particularly on top of energy and food price rises, should get in touch with their lender early. Lenders will do everything possible to help.”
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “As the cost of living continues to rise, the latest base rate rise comes at the worst possible time for borrowers who are not locked into a competitive deal. Mortgage rates have been rising over the past few months and this latest decision makes it imperative for consumers to assess their current deal to see if they can switch to save some cash on their monthly mortgage payments. The desire to fix for longer may well be in the mindset of borrowers who are conscious that rates are expected to climb even further and there are even 10-year fixed mortgages to take into consideration.
“Those borrowers who switch to a competitive fixed-rate from a standard variable revert rate (SVR) could reduce their mortgage repayments significantly. The difference between the average two-year fixed mortgage rate and SVR stands at 1.96%, and the cost savings to switch from 4.61% to 2.65% is a difference of £5,082 over two years approximately.
“Borrowers who have sat on their SVR since before the December and February rate rises may well have seen their SVR increase by up to 0.40%, with around two-thirds of lenders increasing their SVR in some way, this latest decision could see repayments rise further. Indeed, a rise of 0.25% on the current SVR of 4.61% would add £689 approximately to total monthly repayments over two years.
“Not one of the biggest high-street banks has passed on the last two BOE base rate rises to savers who have an easy access account, and as some of these rates are as low as 0.01%, it’s imperative savers reconsider their loyalty and switch away from these brands to something more attractive. As we have seen time and time again, there are no guarantee savings providers will boost their rates because of a BOE rate rise and even if they do it could take a few months to trickle through to customers. Should savers see 0.25% passed onto them, it would mean receiving £50 more a year in interest based on a £20,000 investment.
“Challenger Banks and building societies have not been shy to compete in the easy-access space, and if they have the same protections in place as the biggest high-street banks, then there is little reason to overlook them in favour of a more familiar brand. The top rate tables are experiencing a positive uplift and there is hope that rates will continue to rise, however, we may not see pre-pandemic interest rates for some time yet.”
Simon Gammon, Managing Partner, Knight Frank Finance, said: “The Bank of England’s third consecutive rate hike ensures that we’ll continue to see lenders withdraw and reprice products on a daily basis.
“Mortgage rates that borrowers see today are noticeably higher than six months ago and in six months we would expect to see a similar increase. Often the repricing we’re seeing is by as little as 0.1% or 0.2%, but if that’s happening every other week then you start to see a steady upward trend.
“Five-year fixed rates were as low as 0.91% late last year, but now you’d be lucky to get them under 2%. You haven’t missed the boat, these rates are still very low by historic standards, but we do expect the upward trajectory of mortgage rates to endure for the foreseeable future.”
Nathan Emerson, CEO for Propertymark, said: “The housing market has emerged from the pandemic in a strong enough position to absorb much of the impact of the economic shocks that have been predicted for some time now.
“Even though interest rate rises have been widely predicted, our latest Housing Market Report data shows continued high demand from buyers with the number of sales being agreed at over asking price three times more than in a pre-pandemic market.
“It’s important to remember it remains relatively cheap to borrow money, and we expect that to continue to feed the appetite that there is for property as a good long-term investment.”
Emma Hollingworth, Distribution Director, MPowered Mortgages, comments: “Today’s announcement that the Bank of England has decided to further raise the base rate to 0.75%, has certainly intensified the squeeze on household finances around the UK. This decision will come as no surprise, especially with inflation rising steadily. Last month, the central bank forecast that inflation will increase to 7.25% in April, but now many believe that levels could exceed this.
“As the cost of living continues to rise significantly, many households will find their finances squeezed even further. Those looking for a suitable and affordable mortgage product will need a quick and certain answer to what mortgages are available to them. At MPowered Mortgages, we are using data-driven innovation and targeted AI to help increase automation, reduce complexity, and speed up the process of receiving a legally-binding decision, allowing brokers more time to assist their clients and develop business.”
Steve Seal, CEO, Bluestone Mortgages, comments: “While today’s decision to raise rates is hardly surprising given current inflationary pressures, it will no doubt be difficult news for borrowers, many of whom are already feeling the squeeze on their personal finances.
“While this rate rise will inevitably impact mortgage repayments, there are still steps existing and would-be borrowers can take, whether that be locking in a fixed-rate mortgage or remortgaging. And for those who find themselves in a more challenging financial situation, it’s important to remember there are still lenders out there who can point them in the right direction and help them achieve their homeownership dream.”
Vikki Jefferies, Proposition Director, PRIMIS, comments: “It will come as no surprise that the Bank of England has decided to yet again raise the base rate. Inflation in the UK is at its highest level in 30 years, and many now believe that levels could surpass 7.5% in April.
“As the cost of living crisis continues and economic conditions remain volatile, lenders are beginning to act more cautiously in order to mitigate the risk of borrower defaults, namely by reducing the number of mortgage products they offer. Research from Moneyfacts shows that there are now 518 fewer products for borrowers to choose from today, compared to the start of February 2022.
“Brokers will now need to be more proactive than ever to secure the best outcomes for their customers. This is particularly the case for those who have complex financial situations, and brokers should act quickly to help these customers to find the most appropriate and affordable products that fit their current circumstances.”
Alex Maddox, capital markets and digital director at Kensington Mortgages, comments: “This must have been a difficult decision for the MPC with so many volatile macro and geopolitical events to factor in. Markets are expecting the bank rate to hit 2% by the end of the year, so this rate rise of 0.25% to 0.75% is a step on that journey. With the risk of wage inflation or even Japanese-style stagflation continuing to emerge, the MPC may have a few more difficult meetings in 2022.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The markets have already priced in a base rate rise, with an upward pricing trend across the board and the days of sub-1 per cent fixes long gone. The Bank of England has to carefully balance the need to control inflation with the wider economic challenges posed by rising interest rates.
“For every £100,000 on a variable-rate mortgage, a quarter-point rate rise adds £250 a year.
“The purchase market is still active although the froth has gone. Activity in the remortgage market is picking up and is set to continue as borrowers look to secure rates before there are further increases. Rates can be booked up to six months before they are required and we are getting a lot of interest from motivated borrowers in doing this.
“Even with this latest rate rise, we remain in an extremely low-interest-rate cycle and expect that to be the case indefinitely.’
Tomer Aboody, director of property lender MT Finance, says: “This rate rise was fully anticipated by the markets due to the need to manage soaring inflation. It will help cap some excess spending by consumers, although in a record low mortgage rate environment, consumers are still able to manage themselves and their costs.
“Mortgage pricing is edging upwards, but many lenders up until this point have not passed on previous rate rises in full due to a highly competitive market. If they want to attract business, they need to absorb some of the rate increases; the question is, how long will they be prepared to do this for.”
Alex Lyle, director of Richmond estate agency Antony Roberts, says: “This latest slight uptick in interest rates is unlikely to have a major impact on buyers, particularly not in our part of the country. Lack of stock is more of an issue for the wider housing market, although this is starting to improve, with buyers anxious not about rising house prices or mortgage rates but limited choice.
“With many of the buyers in Richmond purchasing for cash, what happens to interest rates has little impact on their acquisition.
“Those buyers who need a mortgage appreciate that while rates are rising, they are still incredibly low. This rate rise may mean mortgages become a little more expensive, but they are still historically cheap.”
Cory Askew, Head of Sales at Chestertons, says: “Similarly to the rate rise in February, the latest increase to 0.75% would have already been incorporated into the majority of mortgage products. The increase in interest rates is generally viewed as a sensible and anticipated step to target inflation and with the market still extremely buoyant, we do not foresee this to have any serious effect on demand. With further modest rate rises seemingly inevitable over the next 18 months, we anticipate this rate rise to only provide fresh impetus and urgency to buyers to get their purchases secured sooner rather than later.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “The rise in interest rates is not unexpected bearing in mind it is one of the few tools the Committee has in its box for addressing inflation.
“However, the increase is likely to be lower than it may have originally preferred as it is likely to be keeping an eye on the impact on the economy bearing in mind events in Ukraine and the consequences for energy prices.
“The housing market has been a little quieter this year in response to recent events and is unlikely to be unduly compromised by the interest rate change considering only around a third of homes rely on mortgage funding, while many others are on fixed-rate deals.
“Inflation rising to 7 per cent and the prospect of further interest rate increases will bear more heavily on confidence to take on additional debt and will help keep prices in check after their significant uplift last year.”