The Bank of England has raised interest rates by 0.75% to 3%, the eighth consecutive rise and the biggest single increase since 1989.
With the cost of borrowing climbing sharply, and the chance for many to get onto or move up the property diminishing, the property industry was quick to react to the news.
Rightmove’s property expert Tim Bannister: “The era of historically low-interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.
“However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As today’s rise was expected, we don’t think we’ll see any significant changes to new fixed-rate deals based solely on today’s interest rate rise.
“Mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments.
“It’s important to look beyond the headline numbers, because, while “like-for-like” mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”
Simon Gammon, Managing Partner, Knight Frank Finance: “I would be surprised if we see a meaningful rise in mortgage rates in the coming days even with such a large rise in the base rate.
“Many fixed rate products sit somewhere between 5.5% and 6%, which is still high when you consider the base rate is at 3%. Mortgage rates have only just started adjusting following the mini-budget and that should have further to run. Swap rates – instruments used by lenders to price mortgages – have been trending downwards. If they continue to do so, we believe that some borrowers could still enjoy fixed-rate products starting with a four in the weeks ahead.
“This will of course be dependent on the lenders and how they view the outlook, but we think there’s room for more easing in mortgage rates or at the very least a plateau.”
Tom Bill, head of UK residential research at Knight Frank: “This latest bank rate rise is the clearest indication yet that a 13-year period of ultra-low borrowing costs is over. Buyers and homeowners need to remember the impact of the mini-Budget won’t last forever and mortgage rates should start to calm down from the levels reached last month. However, more than four million first-time buyer mortgages have been issued since rates were cut to 0.5% in March 2009, meaning many people don’t have first-hand experience of monthly mortgage bills rising meaningfully. This normalisation of rates plays a central role in our forecast that prices will fall back to their summer 2021 levels.”
Brian Murphy, Head of Lending at Mortgage Advice Bureau: “Another month brings another rise to the interest rate, with no end in sight as recession looms ever closer and the Bank of England continues its attempts to battle with the inflationary pressures bearing down on the UK economy. Those who have secured a new fixed-rate deal in the last couple of months will be breathing a sigh of relief, but for anyone on an SVR or tracker mortgage, this news could be a real source of concern. Expectations are that the industry will see an upwards trend of defaults on mortgage payments in the coming months, so we urge anyone fearing that they may struggle with mortgage payments to go straight to their mortgage provider for guidance.
“For prospective homeowners, it’s a hostile environment to be buying in, but equally it seems doubtful that market conditions will become any friendlier in the near future – speaking to a whole of market adviser is, as always, the best course of action.
“In this enduring period of rising interest rates and inflation, homeowners should prioritise future-proofing their mortgage and property ownership plans. Advisers have now helped clients through eight months of consecutive rate rises, and although the situation is far from ideal, at least it puts them in the best possible position to offer advice to clients that will stand the test of time. However, the onus to help shouldn’t exclusively fall on mortgage providers – as the Autumn Statement approaches, it shall be interesting to see what if any forms of support will be introduced by the government.”