Interest rates have reached 3.5% following the Monetary Policy Committee of the Bank of England’s decision to boost rates by a further 50 basis points.
This brings the base rate to its highest level since the global financial crash of 2008 and marks the ninth hike to interest rates in 2022 alone.
The Monetary Policy Committee voted by a majority of 6-3 to increase #BankRate to 3.5%. https://t.co/sZoxu2CwyO pic.twitter.com/wvYhgDW1fg
— Bank of England (@bankofengland) December 15, 2022
With inflation at 10.7% – still more than five times the government’s target despite the 0.4 percentage point drop in October – the Bank has taken the decision to once again increase the cost of borrowing in an effort to get things under control.
While it was previously thought that Threadneedle Street would be forced into sustaining the last few months’ pace of rate increases well into next year, most forecasts are now estimating they will peak between 4% and 4.5%.
Regardless, the impact of the rises already seen – along with further increases of any size – will be felt by as many as four million households in the UK next year, with the Bank of England suggesting the average monthly mortgage bill will rise from £750 to £1,000.
Businesses and those with personal loans will also be under increasing pressure, adding to the affordability squeeze which is widely expected to dampen the property market during 2023.
However, new data earlier this week revealed that the value of new mortgage commitments in Q3 2022 was the highest seen since the same period in 2007, with appetite for new borrowing during the period “robust and well-met by lenders”.
Industry reaction
“Today’s interest rate decision has seen the base rate climb further still, putting it at its highest level since the financial crisis 14 years ago,” said Nick Chadbourne, CEO of LMS, continuing:
“But there is still no need for mass panic – the rise has already been priced into the money markets so it shouldn’t impact new mortgage products. Homeowners need to bear this in mind and know that there are still options available to help them find products and rates most suited to their needs.
What we do expect is for this to affect SVRs. The remortgage market has slowed in recent weeks as the difference between SVRs and new products is nominal so borrowers are waiting to see if product rates drop further. They will indeed drop, so this is to be expected. But, with SVRs now likely to increase again, this will no longer be the case, so the thought of unknowingly dropping onto such a rate will become unfavourable once more. This will inevitably drive increased market activity as we head into 2023.”
“Despite Brexit, a global pandemic and an ongoing cost-of-living crisis, the housing market has remained resilient. But how much more can the market endure?” asked Simon McCulloch, Chief Commercial & Growth Officer at Smoove, adding:
“With a melting pot of mixed views on the market’s outlook and its trajectory in 2023, it is difficult to predict how home buyers and home movers will adapt to these challenges. The Bank of England is walking on a very fine tightrope while trying to curb inflation.”
McCulloch went on to explain the impact of the latest rise on homeowners and prospective buyers as he sees it:
“Today’s interest rate increase will put even more constraints on the financial situations of both buyers and sellers in the property market, especially those on tracker mortgages or coming to the end of their fixed-rate term soon. With fixed-rate mortgage deals significantly less attractive than they were just a few months ago, many first time buyers will be priced out of homes they thought they could afford or homeowners could be paying hundreds of pounds more each month. A lack of supply will also continue to underpin house prices and create an even bigger challenge for the government to provide support and stability. It is becoming an increasingly challenging market for first-time buyers and homeowners alike.”
Managing Director of House Buyer Bureau Chris Hodgkinson commented:
“The Bank of England has chosen to pile on the financial pressure currently felt by many households for the benefit of the greater good. Unfortunately, the short term consequence of this decision will be thousands stretched even thinner due to the increased cost of their mortgage, with many more homebuyers choosing to sit tight and put off their purchase until 2023, at the very least.
This will mean more sales falling through and a further reduction in market activity, which is sure to bring a further decline in house prices. As a result, we can expect the downward trends that have already emerged in recent months to continue well into the new year.”
Rightmove’s property expert Tim Bannister was more optimistic:
“It’s important to remember that this rise was largely expected by the markets and so will already have been factored into many mortgage lenders’ fixed rates, so the good news is we don’t expect this rise in the base rate to translate directly into increases in current fixed mortgage interest rates.
In late September we saw a rapid increase in mortgage interest rates beyond the base rate trajectory, so the indications are that the direction of travel of fixed-rate mortgage deals will be downward next year. The rise in the base rate will affect those on a tracker mortgage, though average tracker rates are currently lower than fixed-rate deals.
We don’t expect this rise to have an impact on home-mover behaviour beyond what we’re already seeing. Many people will be using this time between Christmas and New Year to assess their options, consider what they can afford, and make a move next year, and they will be spurred on should fixed-rate mortgages drop as anticipated.”
