This week, many expect the Bank of England to raise rates by 0.75% in an effort to combat inflation. In response, ten brokers were asked what it would mean for borrowers and the property market more generally.
Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com: “A rate increase of 0.75% will send shockwaves through the property market. Yes, rates will still be 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.”
Anil Mistry, director at Leicester-based broker, RNR Mortgage Solutions: “Younger borrowers age 35 and below will be feeling the impact of rising rates the most, as many of them will have never experienced rate rises like this and for the base rate to be climbing to these levels. The Global Financial Crisis created an artificial rate environment that has lasted for almost a decade and a half, and we may now be exiting it. Many borrowers and homeowners are going to be brought back down to earth with a thud. Borrowers who may have fixed in recent years, possibly on rates of 2% and under, can now expect fixed rate products to be in the high threes or to even start with a four. Add in the increased cost of living and people’s disposable income gets seriously impacted. As a result, it’s vital that if your current product is ending in the next six months, you speak to your mortgage broker as soon as possible to have your circumstances reviewed and have a new rate secured prior to any further Bank of England rate increases.”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco: “There’s no doubt that a 0.75% rate increase will make many prospective buyers think twice, either about the value of the property they’d like to purchase or whether they are prepared to buy now full stop. Even though rates will still be low historically, a lot of people who have only owned post-Global Financial Crisis will be starting to feel very exposed. Some would-be upsizers may down tools and choose to sit tight for the time being. For first-time buyers, the psychological impact of even a 0.75% rate rise is likely to be less pronounced as their alternative is the rental market, where prices are off the scale. Even if rates rise to 2.5% and beyond, for many it will still be cheaper to own than to rent. There is talk that prices will fall as rates rise, but I think this is unlikely, unless the economy enters a deep and protracted recession. We are more likely to see the rate of price growth fall, and perhaps even flatline, during the year ahead. As ever, the lack of supply will act as a glass floor under the property market.”
Emma Jones, Managing Director of Frodsham-based broker, When The Bank Says No: “A further rate increase this week will likely put many people off from wanting to upsize unless they truly need to. For many, the prospect of potentially far bigger mortgage payments and heating bills will put moving up the ladder on pause. Further rate rises are likely to encourage more borrowing for home improvements and see people start tidying up their finances to reduce their monthly outgoings. However, demand for homes is still as strong as ever so we are certainly not expecting the housing market to completely halt even if rates go up by 0.75%. There is still a shortage of homes so a sudden drop in prices is unlikely. We have seen a handful of lenders increase their rates already in readiness for Thursday’s announcement but we can expect more last minute product withdrawals before then. I would like to think people would extend their mortgage term where possible to manage the payments before looking to sell their homes in a rush and potentially lose money. Without doubt, many people are not adequately prepared for the new rate era we’re entering. Worryingly for tenants, an interest rate rise could see landlords increase rents in order to cover the rising cost of buy-to-let mortgages.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial: “A perfect storm is brewing around the property market and the expected hike in rates later this week will compound the low pressure front that is moving in. Add in the the cost of living crisis and the struggling economy, as seen with last week’s poor retail sales data, and there’s every chance property transactions will fall sharply in the months ahead as people batten down the hatches. A growing number of people will be worried about their job security, which means they won’t be making big decisions in the near term. Most lenders have priced in a proportion of the rate increase expected, but if it’s 75 basis points then I would expect lenders to increase rates further, and fairly rapidly. Forced sales shouldn’t be a major problem, however. After the crisis of 2008, lenders put in strict affordability criteria to ensure customers could cope with interest rates rises and rates, although rising, are still historically low. The new energy price cap will also ensure many households aren’t stretched to breaking point.”
Rob Peters, director of Altrincham-based Simple Fast Mortgage: “Borrowers coming off fixed rate mortgage deals are seriously unprepared for the full 240 volts of interest rate shock they are about to receive. Increased mortgage costs, combined with higher commodity and energy prices, will undoubtedly result in highly leveraged borrowers suffering the most. Some will have to downsize, buyer appetite will reduce and many aspirational buyers will have to put their new home purchase on hold. Even then, though, the core need for people to have homes will still exist and so the wheels won’t be coming off the property market just yet.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “The Bank of England are damned if they do and damned if they don’t. If they fail to contain inflation, politicians will argue that they’re not fulfilling their mandate of keeping inflation low and stable. However, raising interest rates will further exacerbate the cost of living crisis as it will inevitably push up mortgage rates, reducing people’s disposable income. Over the past fortnight, we’ve seen many lenders increasing rates in preparation for further base rate hikes, which will likely continue for the foreseeable future. Tens of thousands of people with mortgages will be hit by rate shock when remortgaging. If the Bank of England raises the base rate by 0.75%, taking it to 2.5%, most of my customers will be on deals below base rate. By the time they come round to renew, they’re going to be faced with increases of such magnitude not seen for over a decade. This will likely lead to some people downsizing and others falling into arrears. Ultimately, it will dampen demand. Many people will say that interest rates have been much higher and they faced worse; however, when interest rates were much higher, people didn’t need to borrow nine times their salary to buy a home.”
Imran Hussain, director at Nottingham-based Harmony Financial Services: “People are beginning to realise exactly how low rates have been for the past decade plus, and those who have gone in blind and possibly over-borrowed are facing some serious financial pain. Another rate rise this week may well see people who were looking at possibly upsizing put their plans on hold, but one thing it won’t do is deter serious first-time buyers or investors as in every market there is an opportunity. As most people now know what their energy bills will be for the next 24 months, confidence is ironically stronger compared to the past three months in the conversations I’m having with clients. Until a fortnight or so ago, energy bills were an unknown and the end of that uncertainty has boosted confidence. I can see lenders reacting quickly no matter the outcome of the Bank of England’s decision. We should brace ourselves for a flurry of rate changes at very short notice later this week and early next.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions: “As rates rise, the major area of concern is people approaching the end of their initial 2, 3 or 5-year fixed rates. In many instances, these initial deals will have been secured at rates well under 2%, but the people in questions will find they are switched onto a new rate of more than twice that. In practical terms, for every £100k this is likely to equate to an average increase in monthly payments of approximately £150. This significant increase, along with the general cost of living crisis, is now reaching a point where some people may have to start contemplating the viability of maintaining their mortgage and whether selling up and downsizing is a prospect that needs to be seriously considered. Whilst, undoubtedly, the current run of rate rises will cause some potential purchasers to stop and think a little longer before moving forward with their plans, I don’t see property values being drastically impacted by the rise in mortgage rates as supply is so low.”
Mark Robinson, Managing Director of Southampton-based Albion Forest Mortgages: “Interest rates will undoubtedly rise once again for mortgages and possibly equity release products but people will find a way of dealing with them. Even though people are surprised when I tell them that their new interest rate starts with a 4 or even 5, they accept it. People need a roof over their head and rental prices are increasing at the same rate or even higher in some areas of the country. We can’t control interest rates, but it will definitely make having a good broker essential for most people to ensure they get the best deal.”
