The Bank of England (BoE) announced this lunchtime that the base rate would increase by 50 basis points to 2.25%, which Market Financial Solutions chief executive Paresh Raja says “threatens to act as a bucket of cold water on what remains a red-hot market”.
The latest increase is the highest the base rate has been for 14 years.
The Monetary Policy Committee (MPC) meeting minutes say that five members voted for a 50 basis point increase, three members wanted an increase of 75 basis points and one member voted for a 25 basis point raise.
Raja says: “The property market is being pulled strongly in two different directions. Today’s interest rate hike is significant, impacting both prospective homebuyers along with existing mortgage customers.”
He explains that the rumours of a stamp duty cut in tomorrow’s mini budget “will spin matters in another direction”.
“Coupled with the decision to scrap affordability tests, it is clear that the Government will do all it can to fuel a lucrative, buoyant property market,” he adds.
While the BoE’s decision will not surprise anyone, Mortgage Advice Bureau head of lending Brian Murphy says “that doesn’t mean it is a welcome decision”.
“Whilst we must commend the efforts of the policymakers to intervene in the current inflation nightmare, the negative impact of the rising rates on mortgages and sky-high house prices has been felt by many, whether they are a homeowner, or prospective buyer.”
“In the context of further rate rises, being savvy can’t outmanoeuvre the increasingly unfriendly property market environment,” Murphys explains.
Meanwhile, Dashly.com founder Ross Boyd comments: “All eyes are now on Friday’s mini-Budget and any changes to stamp duty.”
“Yes, rates are still low compared to their historical average but a huge amount of homeowners and buyers have never known rates this high. Factor in the impact of skyrocketing inflation and an economy that’s teetering on the edge, and you have all the ingredients for a serious slowdown in transaction levels as people buckle up for a turbulent twelve months ahead.”
“It’s no surprise we’re seeing a significant number of people on our platform choosing to pay an Early Redemption Charge in order to lock in before rates rise further. In the current property market, more people than ever are playing the percentages.”
Elsewhere, LiveMore Capital managing director Simon Webb explains: “The inflation challenge is a difficult one given that much of the inflationary pressures the UK is facing are due to global factors rather than domestic consumer overspending.”
“The BoE needs to walk a fine line between trying to manage inflation whilst not slowing the economy too much. Another factor is the response of other central banks around the world to inflationary pressures which is having an impact on the value of the Great British Pound,” Webb adds.
Quilter mortgage expert Karen Noye says today’s interest rate hike “represents the next step in Britain’s fight against rampant inflation and it is likely to cause some significant pain for mortgage borrowers both now and in the future”.
“Some borrowers who opted for a long-term fixed rate deal a few months ago will be protected for the length of the term. However, anyone coming to the end of their fixed rate deal soon or on a tracker mortgage will see a considerable rise in their bills. Together energy bills, high food prices and increasing mortgage costs could be enough to force someone into mortgage arrears. Eventually this may lead to repossessions if missed payments persist.”
“People’s finances are already stretched and while government has stepped in to avoid energy bills spiralling completely out of control, they are still likely to cause significant financial hardship this winter.”
“How this translates into house prices increases or reductions is yet to be seen. News that as soon as tomorrow we could see a reduction in stamp duty might once again stoke the flames of a housing market potentially about to be extinguished due to the macroeconomic backdrop. A stamp duty cut could increase the number of people wanting to move and in doing so push house prices higher again.”
“In the short term, this is not good news for first time buyers who are already struggling with high prices and less affordable mortgages due to interest rate hikes. However, often when there are more transactions happening in the market the number of new builds increases as house builders see demand and look to capitalise on it. This should at the very least create more stock as one of the primary drivers of ever increasing house prices is a significant lack of new build homes in the UK.”