"Mark Carney really is pulling the rug from beneath the nation’s aspiring and existing homeowners"
The move, widely expected by economists, is only the second time in a decade that rates have moved upwards and will affect around 3.5m households who have variable or tracker rate mortgages.
As ever, the property industry was quick to react. Here's what theyre saying.
Russell Quirk, founder and CEO of Emoov.co.uk, commented: “Mark Carney really is pulling the rug from beneath the nation’s aspiring and existing homeowners. The Government’s failure to build any meaningful level of housing stock is pushing prices ever higher and now the Bank of England has hit them with an increase in interest rates that will see mortgage payments increase, while resulting in a pitiful return on their savings.
Although today’s hike will be digestible for many, it should act as a warning shot for UK homebuyers and homeowners. Yes, the cost of borrowing remains low, but interest rates are now at their highest in a decade and could continue to snowball, putting many in a perilous position when they come to buy or remortgage.
Those looking to buy should be strongly advised against the temptation of borrowing beyond their means, as well as the importance of securing a fixed rate mortgage.”
James Newbery, Investment Manager at property investment platform British Pearl, said: “Rates may have gone up but for Britain’s beleaguered savers this quarter per cent rise is still a major damp squib.
Inflation continues to erode people’s money in real terms, and this negligible uptick won’t be enough for savers to pop the champagne corks. Rates may have nudged up but the average savings account is still being decimated in real terms. This rise is not going to precipitate a sudden shift in house prices, either.
Homeowners, landlords and first-time buyers have grown tired of hearing rates are going to rise and have priced in modest rises much like the markets. Households know that rates aren’t suddenly going to start accelerating upwards, as the economy would all but implode. While the interest rate upcycle may have started, few households will be on red alert.
After a decade of artificially low rates, many would argue that a return to historical averages is almost impossible. The savviest savers will be deploying their cash down a range of other avenues for years yet in search of capital appreciation that stays one step ahead of inflation.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "It’s not the relatively modest increase in interest rates which is significant - the message it sends about their future direction is far more important. The change is likely to compromise already fragile confidence to take on debt in the property market and wider economy.
On the other hand, if we weren’t experiencing solid growth in employment, wages and consumer spending there would be no need for the rise. Many homeowners are on fixed-rate mortgages so the immediate impact on finances will be limited. Nevertheless, lenders use the base rate as a reference point for savers and borrowers so costs will soon be on the up.
There are still many borrowers on variable and tracker mortgages who will be immediately affected so property prices and transaction numbers will probably continue to soften, underpinned by the shortage of stock."
James Davis, Founder and CEO at online letting agent, Upad.co.uk, comments: “Given that the Base Rate was kept at 0.5% in May of this year, today’s announcement of an increase to 0.75% really shouldn’t surprise anyone. If anything, I believe landlords actually stand to benefit.
Simply, Upad’s own data suggests that over 50% of landlords are on fixed rate mortgages which means they’ll experience no immediate impact and when they do come to refinance, the currently available mortgage products are likely to have been superseded by more competitive products anyway. By all accounts that means that many landlords stand to make lower repayments in the future.
Moreover, for landlords looking to go onto a new product in the near future, this rate rise has been long anticipated, and lenders have already incorporated it into their current rates given that the 12-month Libor SWAP rates started increasing at the start of this year.
However, this isn’t just about mortgage interest rates – it encompasses so much more of the housing market. On the one hand, there’s an on-going lack of affordable housing for purchase which maintains a level of buoyancy in the rental market. At the same time, this small rate increase could knock confidence in the housing market, meaning people chose to rent for longer. Either way, I believe landlords have nothing to fear and everything to enjoy!”
Ludo Mackenzie, Head of Commercial Property at Octopus Property, said: “This [decision] is significant yet unsurprising. Whilst the residential and commercial property sectors, particularly in London and the South East, continue to face challenges, stakeholders should be in a robust enough position to stomach a 0.25% increase and small, well signposted steps, should be welcomed. Yes there will be winners and losers, but over the longer term it is to be expected that rates should normalise; something that is in the interest of a properly functioning economy.”
Andy Soloman, founder and CEO of Yomdel, had this to say: “Although marginal, today’s news will still come as a kick in the teeth for UK businesses who will feel that the current direction of the purse string hierarchy is starting to turn against them.
In addition to the out of date business rates in place, a higher cost of borrowing not only increases their overheads but also dampens the purchasing appetite of the UK consumer. We’ve seen on numerous occasions that uncertainty around interest rates quickly percolates through to the public and the impact of this declining consumer confidence stretches right to the frontline.
After the last increase, business owners across multiple sectors expressed concerns over a brewing storm, as their cash flow suffered due to declining transactional revenue. There was also a notable spike in the number of people expressing concerns via live chat about the impact of the rise, particularly across the property sector from worried home buyers about their reduced mortgage eligibility.
The economy may be holding its own in the wake of political indecision, but a second consecutive increase may now start to rock the boat.
Our fiscal masters need to reconsider their use of interest rates as a blunt instrument used to manipulate the economy. A slight increase in inflation would be preferable to a continued, penal hike in interest rates. Helping rather than punishing UK business will be far better in the long run than this quick smash and grab via slapping a premium on money costs.”
Matthew Wyles, Chief Executive of Hampshire Trust Bank, said: “The last time the base rate was higher than 0.5% was almost a decade ago. Since then, home owners and property investors have enjoyed a period of dead flat, ultra-low interest rates, unprecedented in modern times. Base rate rises are rarely good news for property values but this increase is particularly significant for markets which have become chronically addicted to cheap money. The monetary authorities need to stand back for a sustained period to understand the impact of what they have done before piling on any more pain.
This rate rise lands on a subdued housing market where, in some parts of the country, prices are still below their 2007 peak. Property investors in London and the South East, already suffering from the impact Stamp Duty hikes and buy to let taxes, are unlikely to find anything in this announcement to brighten their mood. Uncertainty around the outcome of the Brexit negotiations completes the darkening picture.”
Jack Ballantine, Director of Residential Development & Investment at UK Sotheby’s International Realty, commented: “We welcome the Bank of England’s small increase to interest rates today. Sterling’s value is now likely to increase, giving added confidence to foreign investors which is exactly what is needed following punitive tax changes and uncertainty around Brexit. The move further solidifies London’s economic stability and is unlikely to have a negative impact on house prices.
The case to purchase a property in the UK is compelling, our interest rates are now at their highest level since 2009 and Nationwide’s figures this week also showed an uptick in prices. Although inconvenient for those on variable rate mortgages, the small rise should hopefully be manageable for most.”
Nick Leeming, Chairman at Jackson-Stops, comments: “While today’s modest interest rate decision is unlikely to adversely affect the housing market, the increase to 0.75%, means they are now at their highest level since 2009, and importantly, rates have now risen by half a percent in less than a year.
Good things don’t usually last forever however and while the end of this golden period of great mortgage deals won’t be a surprise to the vast majority of prospective and current homeowners, many have become accustomed to a decade of low rates. Homeowners on variable rates will finally see their average mortgage payments rise, which combined with higher inflation will mean that some households start to feel the pinch.
This, combined with current political uncertainty around Brexit and yet another housing minister in charge, could further add to the trepidation of potential sellers although yesterday’s Nationwide house price index which showed house prices accelerating on the year and more homes coming on to the market was a pleasant surprise.”
David Westgate, Group Chief Executive at Andrews Property Group, comments: “It was widely expected, certainly by the media and economists, that the Bank of England would decide to increase the base rate from 0.5 % to 0.75 % today. Now that this has been confirmed and given that it had been predicted for some time, it is very unlikely to cause any shock waves in the property market.
We mustn’t forget that rates are still at a record low and have been for 10 Years. Indeed, we should remind ourselves that back in 2008, before the economic dip, the base rate was around 5%!
What this means, is that in recent times, many people have opted for fixed rate mortgages to take advantage of these historically low rates. Mortgages on floating rates, meanwhile, that would be subject to adjustment after today’s announcement are currently at a record low. Many borrowers are, therefore, protected against any resultant uplift in mortgage costs.
In terms of property values, irrespective of today’s news, we are already seeing a natural adjustment in pricing across many of our operating areas and this is quite simply because property costs are related to affordability. Confidence continues to underpin the property market and consumers should, therefore, still view a property purchase as a medium to long term investment.”
