Interest Rates: Bank of England announces latest decision

The Bank of England has increased base rate to 4.0 per cent - its 10th rate rise in a row.

Avinav Nigam, cofounder of real estate investment platform, IMMO, says: "This increase in interest rates was expected given the pace of inflation. 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.That said, a significant reduction in property prices is not anticipated since demand for homes is strong and growing. 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." 

Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:"'While 4 per cent may not be the peak for base rate, it is unlikely to be far off. Fixed rates are influenced by future base-rate movements and therefore not directly linked to what is decided this week. Indeed, the pricing of fixed-rate mortgages, which soared after the mini-Budget, continues to drift downwards, with five-year fixes available from just above 4 per cent. It’s unlikely to be long before we see five-year fixes cheaper than base rate. Those on base-rate trackers will find their mortgage rate increase by 50 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 3.5 per cent will see that rise to 4 per cent, with monthly payments rising from £1,252 to £1,320.

"The cumulation of ten successive rate rises is significant. A borrower with a £250,000 mortgage on a tracker pegged at 1 per cent over base rate will have seen their monthly payments rise from £954 in December 2021, when base rate rose from 0.1 per cent to 0.25 per cent, to £1,461 today."

According to the Nationwide, the UK housing market is now in its longest slide since 2008, with the UK average house price slipping again last month to leave prices almost unchanged over the last year as a whole. Mortgage rates have eased in recent weeks after surging following the now-infamous mini-budget. But affordability remains stretched according to Nationwide chief economist Robert Gardner: he says that current mortgage rates leave the cost of servicing a typical mortgage as a share of take-home pay at or above the long-term average in all regions of the country.

Finally Rachel Springall, finance expert at Moneyfacts, comments: “Borrowers coming off their fixed rate deal will be disappointed to see this latest rise to the Bank of England base rate, particularly if they plan to sit on their standard variable revert rate over the shorter-term in hopes that fixed rates will come down before they refinance. The mortgage market is slowly recovering from the volatility of interest rate uncertainty towards the tail end of 2022, but the markets are expecting both rises and falls to base rate this year. Lenders tend to pass base rate rises onto SVRs within a few months and a rise of 0.50% on the current average SVR of 6.84 per cent would add approximately £1,536 onto total repayments over two years.

“The cost of living crisis presents a challenging situation for borrowers with an existing mortgage and those who are looking to get onto the property ladder. First-time buyers with a limited deposit may put their plans on hold until they can more comfortably afford to take out a mortgage. New buyers play a crucial role in keeping the market moving, but it would be understandable to see caution when affordable housing is in such short supply. Borrowers with an existing deal may struggle to make overpayments and be concerned about future affordability due to unpredictable house prices and interest rates. Seeking advice before entering any arrangement is wise, as the best deal for any borrower will depend on their individual circumstances.”

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