The Monetary Policy Committee (MPC) of the Bank of England has raised interest rates by 25 basis points from 4% to 4.25%.
This 11th consecutive increase – voted for 7-2 by the MPC – comes after inflation rose to 10.4% in February.
The Monetary Policy Committee voted by a majority of 7-2 to increase #BankRate to 4.25%. https://t.co/3us4oE1pmh pic.twitter.com/uPn7ubt3Pa
— Bank of England (@bankofengland) March 23, 2023
This follows mortgage rates more than doubling over the course of 2022, rising from 1.51% in January to 4.07% by December, money.co.uk data recently revealed.
“When it comes to what’s going to happen next for mortgages, it’s a case of ‘watch this space’,” said Paula Higgins, CEO, HomeOwners Alliance:
“Lenders are eyeballing each other to see who will act first in offering the best new deal. As they test the waters, we’ve seen new cheap rates on offer only to have them quickly pulled again by the lenders, so homeowners on the lookout for the best deal need to act fast.”
Rightmove’s mortgage expert Matt Smith said the lower rate rise compared with previous rises, along with encouraging inflation forecasts for the next year, means lenders should now have more confidence to begin to “edge down their rates” having previously awaited the outcome of three events: the Spring Budget, the UK inlation report, and today’s base rate decision:
“This means that current mortgage rates already factor in a rate rise in March, so we won’t necessarily see mortgage rates increase following today’s decision.”
Adrian Anderson, Director of Anderson Harris said Threadneedle Street’s strategy to curb inflation meant “no pain, no gain” for borrowers:
“This will be particularly challenging for homeowners who have chosen to take a variable rate mortgage in the short-term, in the hope that inflation reduces and they can select a lower longer term fixed rate than what is available now.”
“Higher interest rates might mean that we see a fall in the number of property transactions overall, but it might spur action from homeowners looking to manage their finances more closely,” said James Bawa, CEO PEXA UK, adding:
“A rising interest rate environment will continue to encourage borrowers to shop around as customers who took out a two-year fixed rate mortgage during the Stamp Duty holiday in 2021 will see their deal come to an end this year.”
“We’ve already seen house prices cool since September of last year as a result of higher mortgage costs, with buyers no longer borrowing beyond their means in order to climb the ladder,” said Managing Director of Apex Bridging Chris Hodgkinson, though his prognosis for the future was relatively optimistic:
“While [homeowners] are now treading with greater caution, the increased cost of borrowing certainly hasn’t deterred them and, all things considered, the property market remains in very good shape despite the wider economic picture.”
Co-founder and CEO of Wayhome, Nigel Purves, was less positive:
“We’ve already seen how increasing interest rates have brought uncertainty to the mortgage sector and it’s the nation’s first-time buyers who have been hit hardest in this respect.
Not only are they facing the tough task of accumulating a deposit on the ever increasing cost of a home, but the number of higher loan to value products has also reduced, while the monthly cost of repaying a mortgage has climbed.
It’s a bleak outlook, to say the least, and one that will be all the bleaker following today’s decision.”
