Following yesterday’s worse than anticipated inflation data, the Bank of England’s Monetary Policy Committee interest rate decision today has been widely expected to end in a further hike – the thirteenth consecutive rise. The question has been – how far will they go? Today’s news that the UK base rate is being increased by 0.5 to 5% will further increase pressure for businesses and consumers – but particularly for those with variable rate mortgages or whose fixed rate deals are coming to an end soon. The average two year fixed rate deal hit 6.19% on Thursday and the national media has been dominated with stories of the pressure this is putting on consumers.
Mortgage and Property experts have been sharing their reaction – and concerns – to this latest base rate hike as follows:
Gary Smith, Partner in Financial Planning at leading UK wealth manager Evelyn Partners, comments:
“Expect more mortgage market mayhem after this big bazooka rate hike. Two-year bond yields – a key determinant of swap rates and therefore mortgage pricing – jumped from 5.03% at 1155 to xx moments after the midday pronouncement.
“Lenders were probably already pricing in a 25 basis point move, but the repricing of home loans will be now be more dramatic and protracted.
“With the benchmark interest rate undergoing a step-change to a level not seen since September 2008, the coming weeks are likely to see a procession of raised loan rates – and a succession of eye-watering estimates of how much monthly and annual loan payments will increase as borrowers come off their cheap fixed deals.
“There are some tactics borrowers can use to keep their monthly mortgage payments down, like taking out a longer-term loan like a 30 or 35-year product, or asking to switch part of their loan to interest-only. But they should go in with their eyes open and recognise that there is an element of kicking he can down the road with these options – costs will overall be higher and the loan must be paid off at some point.
“Such tactics can perhaps make more sense for younger borrowers who have time to overpay and get their home loan back on an even keel when the rates environment is more amenable, although even they must be aware will be building up equity in their property more slowly.
“Those struggling with the need to take a call on where the base rate will go in the coming year or two – in order to decide on a tracker or a fix – can also compromise by asking to have part of their mortgage fixed and part variable rate.
“In all this, a good mortgage broker can be very useful, not least because they are likely to handle the admin and communications with lenders more quickly and efficiently and therefore grab products whose shelf-life might be very short.”
Jatin Ondhia, CEO of Shojin, said: “Rate-setters have delivered yet another blow today in their relentless battle against inflation, which continues to overpower the Bank of England’s fiscal policy. With forecasts signalling that further hikes could be on their way, the Bank’s ‘do what it takes’ approach – which has the backing of the Chancellor – will ring alarm bells for many.
“Higher borrowing costs will continue to squeeze homeowners and property investors, which in turn will lead to more buy-to-let investors exiting the market and increase rental costs due to a dwindling supply of property. The impact of this will be felt far and wide. Renters in high-demand areas like London are already spending 40%-50% of their salary on rent. We can only hope that inflation starts to settle soon, but I expect more pain before relief comes.
“Interestingly, property values remain underpinned by a shortage of supply. In good locations and at the right price point for local markets, cash buyers are still out there, while mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions. The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates, which all borrowers have to get used to. For existing borrowers, the Chancellor has ruled out direct government assistance but is meeting with banks on Friday to find ways to soften the blow. Let’s hope they come up with something sensible otherwise we could see an increase in defaults which have so far been muted.”
Paul Oberschneider, CEO of residential lender Hilltop Credit Partners: “The BOE continues to get it very wrong. Raising the cost of money when growth is at virtually zero, and inflation is being caused by factors outside of consumption control, is a recipe for disaster. The focus should be on addressing the underlying causes of today’s inflation, including a lack of housing supply caused by a broken planning system and out of date mortgage products, and fiscal measures that don’t cause more consumer pain. The UK economy is precariously positioned, with real-term UK wages at 2005 levels and the impact of the government’s c. £400bn Covid bailout now finally catching up with the Treasury.”
Ben Allkins, head of mortgages and protection at Just Mortgages said:
“Many would have hoped that the MPC would follow the Federal Reserve – as it often does – and pause its rate rising agenda. But while the Fed pauses to assess the impact of existing increases, the same cannot be said for the Bank of England with stubborn inflation clearly proving too much of a threat to not raise base rate once again.
“As swap rates respond to market expectations and lenders reassess their products, the role of brokers remains paramount to provide quality advice in a changing landscape. While we’d prefer to see base rate falling – like many – there’s no question a base rate change still serves as a reminder to consumers to seek advice and lock in a deal before it changes once again. That’s especially true for the wealth of remortgage business still up for grabs.
“There’s no question the market will continue to present challenges and our message to our brokers has been clear. Now is the time to take advantage of the opportunities available to not only train up and become the best broker you can be, but expand your skill set to boost your earning potential. Business protection is key example of an under-served market with huge upside and real relevance in the current climate.”
Simon Webb, managing director of capital markets and finance at LiveMore, said:
“The Bank of England’s Monetary Policy Committee has been spooked by the unexpected inflation figures yesterday showing stalemate in consumer price inflation and a rise in core inflation. We are still waiting for the previous base rate rises to filter through to the inflation figures but the impact is slow and laborious.
“During the 13 years of low interest rates we had become used to, the Bank said that when rates do rise it will be a slow process, but the opposite has happened. The unprecedented 13th consecutive rise in the base rate in 18 months, with further rises anticipated, is a price Chancellor Jeremy Hunt is willing to pay as bringing down inflation is the government’s ultimate goal.
“This latest rise is likely to be reflected in swap rates, which have almost doubled in the past year and therefore fixed rate mortgages will continue to be more expensive.”
Stuart Wilson, Chairman of Air Club, comments on the Bank of England’s interest rate decision for June:
“As the Bank of England once again announces a successive rise in interest rates, borrowers may reasonably feel concerned about the macroeconomic impacts on their daily lives. Yes, the measures may bring inflation under control, but the decision will increase the pressure on already pinched wallets, especially as we enter the height of a remortgaging year.
“However, the market mood music is not entirely downtempo, and it’s important that we remain realistic. As a record number of borrowers consider their next move, the value of professional financial advice has rarely been more profound. This is especially true for older customers, many of whose affordability may be limited by fixed incomes.
“While rates in the equity release market are not directly impacted by this recent announcement, they are higher than 12-months ago and now is the time for advisers to ensure customers are considering all the inbuild flexibilities available. Delivering good customer outcomes needs to be paramount and with the right financial advice, borrowers should find that navigating the current landscape is perhaps not as tricky as feared.”
Kay Westgarth, Director of Sales at Standard Life Home Finance comments on the Bank of England’s interest rate decision for June:
“Today’s interest rate rise may not have been unexpected, but it was certainly unwelcome with thousands of people who are heading towards the end of their fixed rate deals or trapped on their lenders standard variable rate particularly impacted.
“Older homeowners who may have repaid their mortgages or taken out an equity release plan which boasts rates which are fixed for life are less likely to be feeling this pressure. However, they will no doubt notice the impact on loved ones and the ‘bank of mum and dad’ will become an even more important lending institution – albeit with far better rates than you see on the high street.
“That said, it is vitally important that older people balance their desire to help their families and the need to maintain their own standard of living in retirement. Our own research identified that the majority of families (88%) are supportive when their older relatives consider equity release as they wanted them to do the right thing for their individual circumstances.
“With the support of a specialist financial adviser, older homeowners can use equity release to achieve both objectives in a way that is sustainable for both the long and short term.”
CEO of Octane Capital, Jonathan Samuels, commented:
“As of yet, the Bank of England’s attempts to curb inflation haven’t quite gone to plan and so today’s increase was to be expected.
“While a half a percent jump may seem substantial, it should help the Bank of England regain a grip over the situation at hand, as currently, it trails the Federal Reserve and needs to catch up if we want to see inflation fall like it has in the United States.
“So all things considered, today’s increase is probably appropriate, although this isn’t the news the nation’s borrowers were hoping for.”
Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:
“So far the UK property market has weathered the storm of twelve consecutive interest rate hikes and while we’ve seen marginal signs of house price depreciation, there’s nothing to suggest a thirteenth increase will bring the walls crashing down around us.
“It’s also important to note that a third of homebuyers now own their house outright and so they aren’t feeling the strain of increased borrowing costs. That said, any base rate increase is sure to be passed on by lenders to the nation’s homebuyers and this is likely to mean higher borrowing costs and fewer available mortgage products. This will inevitably have an impact on buyer purchasing power and, as a result, we can expect to see more protracted transaction timelines and a further cooling in property values as the market continues to find its feet.”
Managing Director of Sirius Property Finance, Nicholas Christofi, commented:
“Interest rates are now at their highest in over 15 years, but it’s not just the higher cost of borrowing that will be weighing on the minds of UK homebuyers, it’s the consistency at which rates are climbing.
“Many buyers are finding that, having agreed a mortgage in principle, the goal posts have already moved by the time they find their ideal home and they’re having to return to the drawing board to reassess just what they can afford to borrow.”
Managing Director of Barrows and Forrester, James Forrester, commented:
“It certainly seems as though the Bank of England has lost its grip on inflation and so they’ve continued to pile more misery onto borrowers with yet another rate increase.
“This will do nothing to revitalise what has become a rather weary looking property market in recent months and is sure to dampen buyer demand as lenders pass on this increase in the form of higher mortgage rates.”
Director of Benham and Reeves, Marc von Grundherr, commented:
“The market remains in fairly good form considering interest rates are at their highest since 2008 and we expect this will now bring about a reversal in market fortunes. The more inflated areas of the market, such as London, largely trailed their more affordable counterparts where pandemic house price growth is concerned.
“However, buyers in these regions are better placed to absorb higher borrowing costs and so we expect the likes of the London market to remain largely unfazed going forward. As a result, we expect stronger market performances to materialise compared to some of the other more affordable areas of the market.”
Will Hale, CEO of Key, the UK’s largest later-life advice firm, said:
“While today’s increase to the base rate has been deemed necessary to manage inflation, it is hard not to worry about the impact this will have on ordinary people. Whether these are younger borrowers who took their first steps onto the ladder in a relatively low interest rate environment, families who are already suffering from a range of cost of living challenges or older homeowners on a fixed income, the need to find hundreds of pounds more each month to pay their mortgage is likely to be worrying.
“There is no simple answer, but people should not bury their heads and rely on interest rates falling significantly any time soon as this is unlikely to be the case. Instead, they need to proactively consider all their options and speak to a mortgage adviser now who will be able to help them to make the right choice for their individual circumstances.
“Older customers who may have wanted to repay their existing mortgage and other borrowing ahead of retirement but now find their finances under pressure should also build their understanding of the range of later life lending products available. Lifetime mortgages are more flexible than ever and with the ability to serve interest, make ad hoc repayments and potentially remortgage to a different product in as little as four years, there are far more options than people may realise.”
Ben Waugh, Managing Director at more2life, comments on the Bank of England’s interest rate decision for June:
“The Bank of England’s decision to increase interest rates to 5% was no doubt a hard one and based on the need to control runaway inflation but this will come as cold comfort to many older borrowers – especially those coming off fixed-rate deals and reverting to their lender’s standard variable rate.
“Affordability will remain a key issue and a lot of borrowers will be forced to reassess their options as they see repayments increase sharply. Even those even those over-55s who are lucky enough to have paid off their mortgage are likely to be finding balancing their finances tricky as while headline inflation is high at 8.7%, inflation on food is more than double that at 18.3%.
“There is no quick fix but advisers in the later life lending market are ideally placed to support people who are trying to find the right option for their individual circumstances. With equity release plans offering the opportunity to make ongoing interest as well as lump sum repayments, interest-rates fixed for the life of the loan and some products allowing people to remortgage penalty free after four years, there are a lot of positives to speak to customers about.”
Adrian Anderson, Director of property finance specialists, Anderson Harris, said:
“Today’s news that the Bank of England has raised interest rates once again to 5% spells more mortgage misery for millions of homeowners. There have been some 4 million first time buyers since 2009; a whole generation of homeowners have only ever seen ultra-low mortgage rates and for many, today’s rate rise will force a period of serious lifestyle readjustment.
“UK mortgage holders are highly exposed to interest rate risk as our rates are usually very short term (2-5 year fixed for example) compared to the US and Europe who have fixed rates for the duration of the mortgage, some 25 years or more, hence they are able to better budget monthly payments. 42% of homeowners who purchased a property in 2021 took a 2-year fixed rate when mortgage rates were historically at an all-time low. This is the group of homeowners who are most likely to be hit the hardest.
“Compounding this, property prices compared to income are much higher now than they were in 1989/1990. We are carrying a considerably greater debt these days than 20 years ago hence a rate today of 6% is similar to a mortgage holder paying 13% in 1989/1990. Some of our clients are genuinely scared about how they will service their mortgage. Their largest commitment has increased at the same time all other outgoings have increased.
“It may feel frightening but don’t stick your head in the sand. Fixed rates are predicted to continue to increase over the short term so reach out to an independent mortgage broker who can advise based on your circumstances. If you are concerned about making your monthly mortgage payments, speak to your bank straight away. Banks have dedicated teams to try and help you through this challenging period.”
Adam Oldfield, chief revenue officer at Phoebus Software, says:
“Whether today’s base rate increase will immediately affect mortgage rates is unlikely after recent increases following the surge in swap rates. However, borrowers seeing the headline today will be fearing that another hike is inevitable. With 2-year fixes standing around six per cent the decision for those coming off fixed rates will be a difficult one. Do you fix at six or drift onto an SVR in the hope that at some point in the next two years rates come down? Not an easy decision, especially if as many believe the Bank hasn’t yet finished putting rates up.
“The fact that we have been living in an artificially low interest environment for so long means that, perhaps, some borrowers became complacent. Now the increase to their mortgage payments has come as a massive shock. Nonetheless, paying the mortgage is not optional and as such borrowers are going to need to adjust to this new environment, the new normal.
“Unfortunately, there will be some that simply can’t manage, for whatever reason. We are already seeing the rate at which arrears are rising increase and lenders are going to need to be prepared. It will be very interesting to see what comes out of the Chancellor’s summit tomorrow. Will there be increased pressure from the government for lender leniency?”
Mark Tosetti, Group Partnerships Director of ONP Group commented:
“Yesterday’s inflation figures will have certainly meant a sleepless night for the Bank of England’s MPC. And this morning’s decision has ended hopes that we could follow the lead of the Federal Reserve and pause interest rates. Although we were optimistic that the twelfth increase would signal the end, there is still a prevailing belief in the market that interest rates will decrease in the second half of the year. We can only hope that this will be the thirteenth and final rise.
“We need to see a level of certainty for the cost of borrowing and stability for swap rates. This would then lead to an increased availability of products that better meet the needs of consumers. We are already starting to see increased demand in the remortgage market in the second half of the year. If competitively priced products become available, consumers might be less inclined to remain on standard variable rates.”
