Despite being lower than the 0.5% rise expected, over a million mortgages are set to be affected by the decision and the property industry was quick to react. Here's what they're saying:
Affordability remains a key challenge for borrowers
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “A rise to base rate will come as disappointing news to borrowers who are not locked into a fixed rate mortgage, as their monthly repayments may rise in the coming months amid a cost of living crisis.
"Those borrowers who wish to refinance might be pleased to see that fixed-rate mortgages have fallen since the tail end of 2022 and that it is currently cheaper on average to lock into a five-year fixed rate over a two-year fixed deal. The incentive to fix is clear from the continued rise to the average Standard Variable Rate (SVR), which is now above 7%, a level not breached since 2008. A rate rise of 0.25% on the current average SVR of 7.12% would add approximately £772* onto total repayments over two years.
“Affordability may well be the key challenge for borrowers struggling with the cost of living crisis, as interest rates are higher than prospective buyers, or those looking to remortgage, were perhaps anticipating. Whether now is the right time to get a mortgage will entirely depend on someone’s individual circumstances, so seeking advice is vital. In the meantime, it would be wise for borrowers to keep a close eye on the mortgage market, housing supply and house prices, particularly for new buyers who are a critical part of keeping the market moving.”
James Bawa, CEO PEXA UK, the digital property exchange platform, said: “The continuing rise in interest rates is taking mortgage payments with them. Another rise in interest rates is likely to result in a significant proportion of borrowers rushing to lock in existing deals in case rates climb further. 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.
“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.
"To help the mortgage market cope with growing remortgage demand, and position it to capitalise when transactional activity bounces back, technological innovation is needed. Digital remortgages are going to be key in transforming the property market, helping to increase capacity, reduce friction and improve customer experiences in a market where interest rates continue to rise.”
Tomer Aboody, director of property lender MT Finance, says: "Following the unwelcome news that inflation has risen again, it was inevitable that interest rates would have to follow suit in order to try to get the former under control.
"While the government's target of halving inflation by the end of the year might now look slightly optimistic, many believe that the right course of action is being adopted in the background.
"There are concerns that further rate rises could result in further issues for the banks, but let's hope there is enough stability to counter that risk and that this rise is the penultimate, if not the last, before the Bank can start reducing base rate."
Huge disappointment for the housing market
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the Bank would trust in its own data and leave well alone.
"Activity is slowly beginning to pick up after a very quiet last quarter of 2022 and the housing market is so important to overall economic prosperity. Of course, it is important to reduce inflation as far as possible in view of its impact on buyer confidence to take on debt. Overall, the economy still feels fairly weak as real incomes are falling so we would have liked to have seen at least one month without a rate rise."
Avinav Nigam, co-founder of real estate investment platform, IMMO, says: "This latest increase in interest rates was expected given February's uptick in inflation to 10.4 per cent. Unfortunately, rising interest rates have major consequences for the housing market. There is an immediate increase in the cost of mortgages for the circa 2 million borrowers on variable-rate mortgages, which could mean an increase in the supply of properties for sale, with negotiating power shifting to buyers.
"Even so, a significant reduction in property prices is not anticipated since demand for homes is strong and continues to grow. Higher interest rates, alongside labour and material price inflation, mean that building new homes is getting harder and more expensive. Many projects are being paused, reducing future supply further still.
"Higher interest rates further reduce aspiring homebuyers’ ability to afford to purchase a home, reducing demand. The result of this is more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock. Institutional investors appreciate that as interest rates rise, investing in and improving rental housing makes even more sense commercially and socially."
Marcus Dixon, Director of UK Residential Research at JLL comments: “A further rate rise at an MPC meeting has become almost a foregone conclusion, with rates rising 10 times since December 2021 and the last meeting in February.
"But views on the outcome of the March meeting were mixed. On one hand, the uncertainty surrounding the collapse of the Silicon Valley Bank and the takeover of Credit Suisse by UBS, alongside more encouraging news on the outlook for inflation from the OBR suggested the committee may stick. But yesterday’s double-digit inflation figures, showing an uptick in CPI in February increased the odds of a rate rise.
“Even with today's 25 basis point rise we expect this will signal a topping out (or near topping out) of rates. This is in line with our expectations on rates, with JLL forecasting this will mean house prices fall by 6% nationally in 2023, with the market starting to see annual growth return in the latter part of 2024.”
Adam Oldfield, chief revenue officer at Phoebus Software, says: "The will they, won’t they of the past few days has now been settled and for most it’s not the decision they were hoping for. Unfortunately, there are many factors weighing heavily on the global economy and recent events in the banking sector have added further to the turmoil. The unexpected rise in inflation announced yesterday, along with the half a per cent rate rise by the Fed, no doubt gave the committee grist to the mill.
“There is the suggestion that the rise in inflation last month was a temporary blip, and we should start to see the numbers coming down again soon. If this is the case, it’s hard to see that the Bank of England will have any cause to put the base rate up again in its next meeting. The problem is that we were just starting to see the housing market moving again, so the news of another increase could well give people further pause for thought.
“The only light is that we’ve seen lenders reducing rates in the last week, so perhaps they may not be as quick to put rates up if current swap rates are baked in. Nevertheless, for those on SVRs or trackers it’s a worrying time and lenders, I’m sure, will be getting their houses in order to ensure exposed borrowers get the support they need.”
Simon Gammon, Managing Partner at Knight Frank Finance, said: "At least two major lenders have increased mortgage rates on various products this past month and today's decision by the Bank of England means they are unlikely to be the last. Swap rates, instruments used by the banks to price mortgages, have been moving up since Wednesday's hot inflation reading. In the absence of meaningful data suggesting that rising prices are easing more quickly, then the trend for mortgage rates looks clear.
"That is not to say we are expecting spikes in mortgage rates akin to those we saw after the mini-budget. The mortgage market is likely to be much more stable over the medium term, however, it's now more likely that several weeks of easing mortgage rates have bottomed out and those considering fixing should lock in a deal. Most can be renegotiated should conditions move in the other direction."
Good news?
Tom Bill, head of UK residential research at Knight Frank, said: “There has been upwards, downwards and sideways pressure on mortgage rates in recent weeks as lenders digest a spike in inflation, a slump in sales volumes and a larger dose of caution in swap markets following the collapse of Silicon Valley Bank.
"The good news is that any movements in borrowing costs pale into insignificance compared to the period following the mini-Budget and the overall picture is one of stability. Today’s decision is unlikely to dampen demand in the housing market, which has proved more solid than expected so far this year against an improving economic backdrop. We expect prices will fall by a few percent in 2023 as more homeowners transfer to higher fixed-rate deals and supply rises from the lows of the pandemic.”
