Bank of England hikes rates to a 15-year high of 4%

Today’s decision is likely to put further financial pressure on households across the UK already grappling with rising fuel bills amid the cost of living crisis.

As might be expected, the real estate industry reacted quickly to the news. Here’s what they say:

Rightmove real estate expert Tim Bannister says: “Today’s 0.5% increase in the Bank of England’s base rate is another cost that homeowners with a tracker mortgage will need to factor into their monthly budget if the full interest rate is passed on.

“It’s likely that even with this increase, many of those who have tracker mortgages will still have a lower interest rate than most current fixed-rate deals, so it’s unlikely we’ll see any rush from this group now.” , when it comes to fixing this group, although the gap between trackers and fixed rates limiting it could lead to more people seeing what’s on offer in the coming weeks.

“For those considering taking out a fixed-rate mortgage soon, the good news is that this increase was widely anticipated by financial markets and likely factored into their plans. This means that fixed rate mortgage deals may continue to trend lower in the first half of this year as some stability and calm continues to return to the markets.

“We’re still seeing higher buyer demand than the last normal housing market of 2019, suggesting people have the confidence to proceed with their moves and if firm deals continue to fall, that could give people further encouragement. We may see more base rate increases later this year, but it’s hard to predict how that will affect mortgage rates.”

Tom Bill, Head of UK Housing Research at Knight Frank said: “The magnitude and direction of bank rate movement is less relevant to homebuyers now than the fact that the mortgage market is stable. Fixed rates decline steadily but not significantly after the mini-budget as the peak in borrowing costs nears.

“Buyers and sellers shut down well before Christmas last year due to mini-budget-induced volatility, but activity has recovered in 2023. Most buyers are need-driven and have embraced the new normal in mortgage rates, which is supporting demand. The Bank of England’s less negative release on the outlook for the UK economy will support sentiment.

“The resilience of prices and sales volumes will be tested in the spring, when a larger number of transactions take place and by then virtually no five-year fixed-rate mortgages below 4% will remain in the system. We expect that to drop by 10% over the next two years when budgets are recalculated.

“A strong labor market, relatively weak supply and the fact that more homes have been owned directly than with a mortgage in England since 2013 will keep upward pressure on prices.”

Paul Wilson, Chief Investment Officer at Channel Capital said: “A decade of record-low interest rates was neither economically sound nor sustainable. But the surge from all-time lows to a 15-year high of 4% in 14 months has inevitably created challenges for lenders and borrowers alike.

“For lenders, this has hampered their efforts to secure senior debt from banks and institutions, many of which are reluctant to deploy capital in the current climate of changing interest rates. The lack of senior debt — which is critical as it makes up the majority of a lender’s funding stack — in turn prevents or limits lenders from making loans to customers. It becomes a vicious circle.

“In times like these, other sources of capital become more important. Mezzanine financing is a prime example, and we’re seeing more and more lenders considering this option when building their financing stack. By securing mezzanine financing from more nimble, ambitious or proactive investors, lenders can bring much-needed confidence to senior lenders. Therefore, more needs to be done to promote the role of mezzanine finance in the current climate; It keeps the lending industry active and is likely to remain in high demand for the months and years to come.”

Steve Seal, CEO of Bluestone Mortgages, comments: “Although there are signs that inflation has peaked, today’s decision will still be a hard pill for consumers and borrowers. Interest rates have now risen for the tenth straight month, pushing up mortgage payments yet again. As a result, affordability issues will likely remain.

“For those who are struggling in the current situation, remember that hope is not lost and help is at hand. Not only is there a wide range of support for customers struggling with their financial situation, but we’ll likely see prices come down again later this year. Today, more than ever, specialist lenders play an important role in supporting clients who don’t fit the “vanilla” category. It is the duty of this industry and is at the heart of what we are doing to ensure these clients can still achieve their homeownership dreams.”

Jeremy Leaf, North London estate agent and former chairman of RICS housing development, says: “The impact of the Bank of England’s base rate decision appears to have been discounted by many homebuyers and sellers who have fixed rate deals that have not expired for some time. But don’t get me wrong, those directly affected by the change will know all about it in their repayments.

“The impact on house prices has reminded us that negotiations can be difficult if transactions are to take place as the outlook is not exactly rosy.

“While further base rate hikes are undesirable, more attention is being focused on two- and five-year fixed-rate mortgages, which fortunately have started to fall. This will bring much-needed stability and confidence to borrow despite continued worries about the economy.”

Tomer Aboody, director at real estate lender MT Finance, says: “Borrowers will be hoping that this latest rate hike will be one of the last in quick succession.

“With Rishi Sunak’s government pushing to halve inflation by the end of the year, it’s not unreasonable to ask if there could be an even bigger stimulus to the housing market in the form of a possible rate cut from next year.

“One thing is for sure, consumers are already preparing for tougher times as they wait for some relief from aggressive rate hikes.”

Emma Hollingworth, Managing Director of Mortgages at MPowered Mortgages, comments: “While today’s decision by the Bank of England to raise interest rates by 0.5% will raise borrowing costs again across the UK, the mortgage market should remain resilient. This is especially true as swap rates continue to be read positively.

“However, the cost of living will likely remain high for the foreseeable future. It’s important that the industry continues to support homebuyers and mortgage lenders by keeping interest rates as low as possible and developing innovative products that meet consumer needs.

“Delivering seamless mortgage processing also remains important, and at MPowered Mortgages we are committed to using AI and data-driven innovation to make mortgage processing as quick and easy as possible for everyone involved.”