The Monetary Policy Committee of the Bank of England has voted 7-2 to raise interest rates by a further 0.5 percentage points from 4.5% to 5% in an effort to combat ongoing inflation, which stands at 8.7% according to the ONS.
This 13th successive increase in the base rate will see borrowing costs once again increase as the affordability squeeze on borrowers’ pockets continues to tighten its vice.
The Monetary Policy Committee voted by a majority of 7-2 to increase #BankRate to 5%. https://t.co/PIoE5NDqyY pic.twitter.com/ZIR1KPSLot
— Bank of England (@bankofengland) June 22, 2023
This comes as data from Moneyfacts revealed the average two-year fixed rate mortgage has risen above 6%, with the average five-year rate now 5.67%. Meanwhile, one in 10 deals have been scrapped by lenders altogether.
This led personal finance commentator Martin Lewis to describe the situation regarding mortgages as a “ticking timebomb” that has now “exploded”.
Yet, Prime Minister Rishi Sunak has reaffirmed the government’s position that there will be no further help to help homeowners with soaring mortgage costs, with many subsequently expecting arrears and repossessions to rise in the coming weeks and months.
“Yesterday’s inflation figures were disappointing, however today’s Base Rate rise won’t come as much of a shock to lenders who have already been increasing their fixed-rate mortgages sharply in anticipation of today’s rise,” said Rightmove’s mortgage expert Matt Smith.
He added that, should the news provide reassurance to the markets insofar as control of inflation, then stability should in turn be expected in the mortgage market. Smith was also positive that interest rate rises are leading people to assess their budgets and what they can afford, rather than putting their plans on hold altogether:
“Our real-time data still shows that more people are sending enquiries to estate agents to view homes for sale than at this time in 2019. We’ve also seen daily visits to our Mortgage in Principle service increase by 53% over the last month as more people look to understand what they can afford to borrow and repay on a mortgage.”
“Although we were optimistic that the twelfth increase would signal the end, there is still a prevailing belief in the market that interest rates will decrease in the second half of the year. We can only hope that this will be the thirteenth and final rise,” added Mark Tosetti, Group Partnerships Director of ONP Group, who called for stability:
“We need to see a level of certainty for the cost of borrowing and stability for swap rates. This would then lead to an increased availability of products that better meet the needs of consumers.
We are already starting to see increased demand in the remortgage market in the second half of the year. If competitively priced products become available, consumers might be less inclined to remain on standard variable rates.”
Positivity also came from Nathan Emerson, Chief Executive, Propertymark:
“It’s undisputed that homeowners and first steppers will be facing the consequences of rising interest rates as borrowing costs increase. However, with this comes a further shift towards more realistic and sustainable house prices down from the spike seen during the pandemic.
Confidence from sellers is undeterred with our latest data showing a 70% increase in properties available for sale compared to April 2022 and in turn, this is providing buyers more room for negotiation as well as more choice.”
