BoE rate rise: Reaction from mortgage brokers and IFAs

by | Nov 3, 2022

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Following today’s news that the Bank of England has hiked rates by 0.75%, the biggest single rise since 1989, mortgage experts have been sharing their thoughts with IFA Magazine as follows:

Austin Johnson, founder of Colchester-based Mortgages for Actors: “Although the base rate is still not that high when compared to 15-20 years ago, such a sharp and sudden hike for those who have been fixed very low for very long will leave them reeling at the change. Borrowers on the whole will be affected, but worst hit will be the people whose fixed rate ends in the next few months. Some people could see their monthly payment double.

People on variable rates, especially portfolio landlords, will need to get the ball rolling ASAP as they will have increasing costs across their whole portfolio. Even the people in the middle of a long fix will now be limited in their flexibility. If they suddenly needed to get out of the fix, they will be hit with a huge hike in rate. Movers will be wary of moving, buyers will be wary of buying and rents will rise to make up for this. Property prices will need to come down to cope with the change if we want to keep this market moving smoothly. With things as they are, people need to talk to their broker to ensure they get the best possible deal.”

Paul Holland, a mortgage broker at Chatham-based Henchuch Lane Financial Services“Fixed rates have already factored in this increase so they shouldn’t move any further north. They tend to be based on swap rates, which if anything, are now coming down as some confidence is restored to the market following the U-turn on everything Kwasi and Truss did. Tracker rates and variable rates will of course go up as a result of Thursday’s rate rise, but there is such a huge gap between the bank rate and fixed rates that we shouldn’t see any further hikes in the short term.

Anyone exiting their mortgage now and in the foreseeable will be having a shock in comparison to the rates they’re used to and we’re currently dealing with clients whose mortgages are going up by £500-£1000 per month. This is making the energy crisis seem like a drop in the ocean and there will be a lot of people defaulting on their mortgages or selling their houses in the medium term. Savers on the other hand should of course start to benefit from this.”

Ashley Thomas, director of London-based mortgage broker, Magni Finance“As expected, the base rate has increased to 3%, although mortgage lenders will have priced this in over the past month already. As absurd as it sounds, you might find that more mortgage rates will reduce as the base rate has not increased as high as some feared. Clearly, the appointment of Rishi Sunak as PM has had a significant and positive impact for the mortgage market and therefore homeowners.”

Justin Moy, founder at Chelmsford-based EHF Mortgages“This rate rise was not unexpected and will bring us in line with similar economies around the world. What we now need to see is some stability among fixed-rate mortgage products, given we have had some minor reductions in the last week or so. A bigger problem will be the affordability assessments and stress testing on both residential and buy-to-let mortgages, as the amount you can borrow will inevitably reduce again.”

Elliott Benson, a mortgage broker at Sett Mortgages“Though this is the rise we were all anticipating, it will still come as a shock to many homeowners. The days of ultra-cheap mortgage finance are now over. I would advise anyone who is still thinking of buying or remortgaging to keep calm, seek professional advice and take the right decision for their own circumstances. Never has independent mortgage advice been more important.”

Jon Halbert, mortgage and protection adviser at Ormskirk-based Key Financial Associates“This rate rise potentially kills the purchase market stone dead and is catastrophic for anyone coming out of a fixed rate. Anyone who fixed their mortgages last year for longer than 2 years, at less than 2% for some and less than 3% for others, may not need to change their spending habits for now. For those families whose fixed rates end in the next few months, this could mean mortgage defaults and even repossession.

£100,000 over 25 years @ 2% last year would have cost £423.85/pm, whereas the same borrowing @ 6.00% will now cost £644.30/pm. Anyone who has a mortgage with a fixed rate ending within the next 6 months who is worried about this and the effect it will have on them should speak to a mortgage broker as soon as possible. It has never been more important to be proactive.”

Hannah Bashford, director of Surrey and Devon-based Model Financial Solutions: “The Bank of England base rate decision on Thursday will not have a huge impact on mortgage lending as lenders had already priced in this increase. In fact, many had forecast a hike that was higher than the one we saw today. Tracker rates will increase after today’s rate decision but they remain very competitive in comparison to fixed rates.”

Paul Elliott, managing director at Propp: “This rate rise will not have come as a surprise to anyone. In fact, after the chaos caused by the mini-Budget, a 0.75% hike seems reasonable. The key from a borrower perspective is how the swap rate markets react to this increase and the Autumn budget given that fixed rate mortgages are still the most popular option for most people. That said, even if fixed rate money does start to drop from the peaks seen in October, we’re still entering a prolonged period of higher rates than most borrowers have been used to for the past 15 years. This will undoubtedly put pressure on affordability and exacerbate the current cost of living crisis for many. Difficult times lie ahead for many.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial: “Hopefully this is it. The largest increase in interest rates in over 30 years should be enough evidence for the Bank of England to realise they can’t do anything about imported energy prices. The recession we are entering will be sufficient to bring down inflation over the medium term so the Bank of England can back off. You can see that the Monetary Policy Committee members might already be starting to think this way, as there were two out of the nine who voted against the move on Thursday.”

Anil Mistry, director at Leicester-based RNR Mortgage Solutions“This base rate increase is going to have a minimal impact on fixed rates. Lenders have already priced their products with future rates at 6%. The appointment of a new PM and Chancellor has brought back confidence into the market, and meant future rate increase expectations are at a lower level. So, as we have seen this week, lenders could reduce rates, or keep them stable, despite the fact we’ve just had a rate hike.”

Nicky Stevenson, Managing Director at Fine & Country: “Many lenders had already hiked the price of their fixed-rate deals in the aftermath of September’s mini-budget, so there is room for cautious optimism that these deals will be largely unaffected by the bank’s announcement. However, it will be a different story entirely for existing homeowners on variable mortgages, who will see an immediate increase in their borrowing costs.

“Even bigger challenges are now starting to surface in the rental market where landlords have typically relied on interest-only loans to finance their acquisitions.  Many will see their monthly repayments double or even triple when their current deals end.

“Because mortgage interest is no longer an allowable tax expense, many landlords face a stark choice between selling up, or trying to pass their ballooning costs on to their tenants. The risk is that we see available stock shrinking and rents going into overdrive. This is now a fast developing story which policymakers cannot afford to ignore.”

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