"As the financial pain increases for anyone buying or re-mortgaging, it will keep prices in negative territory and a lid on transaction numbers this year"
The rise of 0.5 percentage points was larger than expected, surprising the market to some extent although rumours of a bigger hike gained traction yesterday following gloomy inflation figures.
The Bank says it will continue to monitor inflation and further rate increases will be required if inflation continues to be higher than expected.
As you would expect, the property industry was quick to react to the news. Here's what they're saying:
Steve Seal, CEO, Bluestone Mortgages, comments: “Today’s decision to hike interest rates by 0.5% to 5% - the 13th consecutive rate rise in a row - will be a significant blow to mortgage borrowers, many of whom are already being squeezed to the limit. And, with many lenders repricing or withdrawing products from the market altogether, the outlook for would-be and existing borrowers remains subdued.
“For those individuals struggling amid this tough economic landscape know that there is support available. Whether they are struggling to keep up with their mortgage payments or aiming to take their first steps onto the property ladder, it is critical to contact their lender as soon as possible or seek advice from a mortgage broker who can walk them through the options available. As an industry, it is our duty to signpost these customers to the right support and ensure that their dream of homeownership can live on.”
Ben Allkins, head of mortgages and protection at Just Mortgages said: “Many would have hoped that the MPC would follow the Federal Reserve – as it often does – and pause its rate rising agenda. But while the Fed pauses to assess the impact of existing increases, the same cannot be said for the Bank of England with stubborn inflation clearly proving too much of a threat to not raise base rate once again.
“As swap rates respond to market expectations and lenders reassess their products, the role of brokers remains paramount to provide quality advice in a changing landscape. While we’d prefer to see base rate falling – like many – there’s no question a base rate change still serves as a reminder to consumers to seek advice and lock in a deal before it changes once again. That’s especially true for the wealth of remortgage business still up for grabs.
“There’s no question the market will continue to present challenges and our message to our brokers has been clear. Now is the time to take advantage of the opportunities available to not only train up and become the best broker you can be, but expand your skill set to boost your earning potential. Business protection is key example of an under-served market with huge upside and real relevance in the current climate.”
Simon Gammon, Managing Partner, Knight Frank Finance, said: "It's been a disappointing week for anybody that needs to refinance this year. Markets probably require two or three months of meaningful falls in core inflation before swap rates begin to ease and lenders can pass that onto borrowers via lower mortgage rates.
"That means it'll likely be September at the earliest before we see any decent falls in mortgage rates and that may stretch into 2024 if inflation proves particularly stubborn. Once we do see a couple of positive numbers and swap rates begin to fall, we're confident that lenders will drop rates quickly.
"Mortgage rates have repriced sharply over the past four weeks and we're hopeful that today's rise in the base rate is at least partially baked in."
Tom Bill, head of UK residential research at Knight Frank said: “Inflation has replaced the mini-Budget as the single biggest headache for the UK housing market. As the financial pain increases for anyone buying or re-mortgaging, it will keep prices in negative territory and a lid on transaction numbers this year.
"That said, the wage growth that is driving core inflation higher is one of the reasons we don’t expect a steep decline in house prices. Record levels of housing equity, the availability of longer mortgage terms, a stable banking system, the political pressure on lenders to show forbearance and the recent popularity of fixed-rate products should prevent a collective cliff-edge moment for the UK housing market.”
“Meanwhile, rents continue to be forced higher by a lack of supply, which has been exacerbated by a number of landlords selling up in recent years. A series of tax changes have been politically expedient but economically damaging, with tenants paying the price as a growing number of property owners decide to be a landlord no longer stacks up. Rising rates will only exacerbate this situation this year, and upwards pressure on rents is unlikely to relent any time soon.”
Emma Hollingworth, Managing Director of Mortgages at MPowered Mortgages comments:
“Today’s decision by the Bank of England to raise interest rates to 5% is no surprise in the face of stubborn inflation. Indeed, there are expectations that the base rate will peak at 5.5% before the end of 2023.
“The impact of this decision, which has been expected for the last couple of weeks, has already been felt across the mortgage market. With the cost of living likely to stay high for the foreseeable future, adding to the financial pressure currently felt by consumers, it is important that the industry comes together to support homebuyers in any way they can. Product innovation is important, and in an ever-evolving market, it is critical that lenders offer brokers as much notice as possible about product withdrawals or changes.
“At MPowered, our AI and data-driven process can rapidly process complex applications and allow brokers to get decisions for their customers as quickly as possible – vital in this rapidly changing market.”
Nathan Emerson, Chief Executive for Propertymark said:
“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.”
