The Monetary Policy Committee of the Bank of England voted 5-4 on Thursday that interest rates in the UK should be increased by 0.5 percentage points to 2.25% – the highest rate in 14 years, but just shy of the widely anticipated rise of 0.75%.
With inflation currently at a rampant 9.9%, Threadneedle Street will be hoping this move – which follows in the footsteps of the US Fed’s decision on Wednesday – will steer inflation towards its 2% target.
Any rise in rates – especially in the context of several consecutive increases – is likely to impact mortgagors and therefore the housing market.
The Monetary Policy Committee voted by a majority of 5-4 to increase #BankRate to 2.25%. https://t.co/0JjcPkmW01 pic.twitter.com/k2Ey9DhtbO
— Bank of England (@bankofengland) September 22, 2022
How has the industry reacted?
“Rate rises have become one of the most predictable events of 2022, but the implications for property buyers are huge when we’re fast approaching the point where the average UK home costs more than ten people’s salaries. The ‘fantasy economics’ underpinning the housing market are all too real for would-be homeowners, whose ability to save is hampered by rising rents and soaring inflation,” said Andy Sommerville, Director at Search Acumen. He continued:
“Low interest rates have been the balm that has soothed the burning affordability crisis for much of the last decade. This latest rise risks leaving first-time buyers stranded at the foot of the property ladder with more financial pressures than ever to weigh them down.
More than ever, Government needs to get to grips with the structural shortages that are holding back the market if it wants to relive the post-war boom that drove housebuilding to new heights. Cheap credit and inflationary incentives can’t keep the fires burning when the market needs planning reform and digital transformation to make it fit for purpose.”
“Despite interest rates rising, demand in both the first-time buyer sector and overall market is still up on the longer-term pre-pandemic average, signalling that many are adapting to changing rates in their plans and getting on with moves,” said Rightmove’s property expert, Tim Bannister. He added:
“Despite interest rates rising, demand in both the first-time buyer sector and overall market is still up on the longer-term pre-pandemic average, signalling that many are adapting to changing rates in their plans and getting on with moves. Even with a seventh consecutive rise this takes average lender rates back towards where they were as recently as 2012-2014. The indication is that rates are set to rise even further into 2023. This sense that it’s going to become more expensive to borrow means that those thinking of buying for the first time may rush to fix now before rates rise further.”
Nathan Emerson, CEO of Propertymark, was optimistic that the market will remain “strong and healthy”:
“Recent rises have been so widely spoken about that this has fed directly into consumer sentiment and has left some people uneasy about moving home, but those looking to enter the market should not be spooked by this.
Despite increases, the majority of buyers and sellers are taking advantage of the cooling off in house prices and the slight easing in competition, and they continue to enter a strong and healthy market.”
Andrew Hagger, Personal Finance Expert, Moneycomms.co.uk, said the impact on mortgagors’ will leave them in for a “massive shock”:
“Mortgage borrowers approaching their fixed rate renewal are in for a massive shock when they see the eyewatering increase in their monthly repayments.
Facing hundreds of pounds extra in mortgage repayments on top of soaring food, fuel and energy costs means some borrowers will face a serious monthly budget deficit.”
Simon McCulloch, Chief Commercial & Growth Officer at Smoove, said:
“The Bank of England’s latest hike will present a challenge for both prospective buyers and homeowners. First-time buyers will have to hunt for an affordable fixed-rate mortgage that can shield them from spiralling base rates. Those on a standard variable rate may wish to consider other options, perhaps committing to a more affordable fixed-term mortgage before rates rise even further. We expect longer term mortgages in excess of 25 years to become far more common as the base rate ratchets up.
While one might expect the property market to dip, both in terms of pricing and transaction volumes, on the back of this rate hiking cycle, the mooted stamp duty reforms may maintain activity through the economic downturn.”
CEO of Alliance Fund, Iain Crawford, was slightly more optimistic about the impact of the rate rise. Rather, his concern is the lack of stock:
“Another base rate increase was anticipated, albeit delayed by a week, and while a half a per cent jump may certainly seem cause for concern, the cost of borrowing remains very palatable for those looking to invest their hard earned money into bricks and mortar.
Despite the wider pressures of economic uncertainty and the increasing cost of living, we’ve seen an unwavering level of buyer demand continue to cultivate positive house price growth across the UK market and we can expect this buoyancy to remain for the foreseeable future.
The real issue facing the nation’s homebuyers at present isn’t the increased cost of securing a mortgage, but the lack of suitable stock available to them when looking to buy. Unfortunately, the government looks set to keep their head in the sand in this respect, ignoring the burning issue of housing supply and instead choosing to fuel demand with a cut to stamp duty.”
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