By The Bank of England has taken the decision to increase interest rates by a further 0.25%, placing the base rate at 4.25%.
This is the 11th consecutive increase and the base rate now stands at its highest level since October 2008.
The rate was already at its highest level for 14 years and now the impact of this rate rise is set to be felt by borrowers as mortgage and loan costs are set to be higher.
When interest rates rise, around 1.6 million people on tracker and variable rate deals will see an immediate increase in their monthly payments.
The increase of 0.25 percentage points today means that homeowners on a typical tracker mortgage would pay around £24 more a month as those on standard variable rate mortgages face a £15 increase.
Susannah Streeter, head of money and markets, Hargreaves Lansdown, comments:
“A banking curve ball has been thrown into the Bank of England’s already tricky juggling act, but for now the eye of policymakers is still firmly trained on catching inflation and bringing it under control.
The hotter than expected temperature of consumer prices in February, and the tight labour market are cause for concern, amid worries inflation could still become embedded in the economy.
It wasn’t a unanimous decision though, with the Monetary Policy Committee split on what to do, given how rapidly the sands have been shifting.
The pound has climbed higher above $1.23 adding to gains already made amid widespread expectations of this rate rise.
The knock-on effects of the banking scare are still hard to determine, and with lending criteria expected to be tightened and loans set to be harder to come by, a forecast deterioration in financial conditions is likely to be the equivalent to further interest rate rises in the months to come.
Inflation was already expected to drop sharply by the end of the year to around 2.9% and if consumers and companies find it harder to access credit, it’s likely to be a fresh disinflationary force.
So, in May policymakers are expected to press pause on rate hikes, as the lag effect of tightening across the economy comes into play.”
Simon Gammon, Managing Partner at Knight Frank Finance, comments:
“At least two major lenders have increased mortgage rates on various products this past month and today’s decision by the Bank of England means they are unlikely to be the last.
Swap rates, instruments used by the banks to price mortgages, have been moving up since Wednesday’s hot inflation reading.
In the absence of meaningful data suggesting that rising prices are easing more quickly, then the trend for mortgage rates looks clear.
That is not to say we are expecting spikes in mortgage rates akin to those we saw after the mini-budget.
The mortgage market is likely to be much more stable over the medium-term, however it’s now more likely that several weeks of easing mortgage rates has bottomed out and those considering fixing should lock in a deal.
Most can be renegotiated should conditions move in the other direction.”
Tom Bill, head of UK residential research at Knight Frank, comments:
“There has been upwards, downwards and sideways pressure on mortgage rates in recent weeks as lenders digest a spike in inflation, a slump in sales volumes and a larger dose of caution in swap markets following the collapse of Silicon Valley Bank.
The good news is that any movements in borrowing costs pale into insignificance compared to the period following the mini-Budget and the overall picture is one of stability.
Today’s decision is unlikely to dampen demand in the housing market, which has proved more solid than expected so far this year against an improving economic backdrop.
We expect prices will fall by a few percent in 2023 as more homeowners transfer to higher fixed-rate deals and supply rises from the lows of the pandemic.”
Marcus Dixon, Director of UK Residential Research at JLL, comments:
“A further rate rise at an MPC meeting has become almost a foregone conclusion, with rates rising 10 times since December 2021 and the last meeting in February.
But views on the outcome of the March meeting were mixed. On one hand, the uncertainty surrounding the collapse of the Silicon Valley Bank and the take over of Credit Suisse by UBS, alongside more encouraging news on the outlook for inflation from the OBR suggested the committee may stick.
But yesterday’s double digit inflation figures, showing an uptick in CPI in February increased the odds of a rate rise.
Even with todays 25 basis point rise we expect this will signal a topping out (or near topping out) of rates.
This is in line with our expectations on rates, with JLL forecasting this will mean house prices fall by 6% nationally in 2023, with the market starting to see annual growth return in the latter part of 2024.”
Forbes Advisor’s Mortgage Expert, Kevin Pratt, comments:
“Wouldn’t it be nice if we saw the returns on savings reflect today’s quarter-point Bank Rate increase swiftly and in full?
But history shows that banks are depressingly sluggish when it comes to passing on increases to their saver customers.
These days, in the midst of a full-blown cost-of-living crisis that shows no signs of abating, those who rely on their savings for some or all or their income deserve to be treated better.
As for mortgage customers and other borrowers, today’s rise will sting that little bit more because, for the first half of this week, we heard plenty of confident predictions that Bank Rate would be held at 4%.
Fixed rate borrowers will be sheltered until their term ends, so let’s hope rates switch into reverse soon.
But for those with trackers and variable rates, the effects will be pretty much immediate.
Households across the land will receive this news with weariness and despair.”
Commenting on interest rates rising to 4.25% and the UK being in a potential economic danger zone, Charles White Thomson, CEO at Saxo UK, said:
“The UK is in an economic danger zone.
I am an advocate for bold plans which will unlock the UK’s potential and to break the high tax and low growth loop, but the status quo is increasingly painful and uninspiring, and this should not be about celebrating recent monthly GDP growth of an anaemic 0.3% and the avoidance of a technical recession.
The UK continues to underperform its key counterparties and have underserved the majority and their aspirations.
Change is required.
As opposed to talking of the Chancellor and Government, I prefer to continue referring to the UK as a PLC.
Instead of Prime Minister we have a Chief Executive Officer and for the Chancellor, a Chief Financial Officer.
My resounding conclusion from the UK PLC’s recent financial statement – or budget – is that the management team are in an unenviable position in that there is little wiggle room for large change.
The UK PLC is effectively in a financial straitjacket with constraints including: £2.4 trillion public debt and all the servicing costs this entails, tax to GDP levels approaching record highs or 37.5% and corporation tax moving to 25% from 19% for financial year 2023/24.
Financial outlook statements for generations of UK PLC management have concentrated on the status quo as opposed to a more dramatic plan to seriously kick start growth, confidence, and the all-important upside this brings.
We have an advantage in that UK PLC is the sixth largest global company or economy in the world with all the scale and reach that this brings.
This is about a bold and large plan to ensure that we deliver on its full potential and unleash the prosperity that a large part of the UK shareholders want.
The alternative to a bold and wide changing economic plan, which is not purely based on industrially low interest rates and quantitative easing, is continued stagnation and underperformance.
This will not be easy, but the alternative is to sell out the next generation which should never be a consideration.”
Group Chairman of Cornerstone Tax, David Hannah, discusses the impact of the rise in interest rates on UK households:
“In the short term, today’s announcement from the Bank of England to increase interest rates by 0.25 percentage points to 4.25% will have a detrimental impact on those who are currently on variable mortgages, and it may lead to people running into genuine financial difficulty.
It is also set to affect first-time buyers who may now be unable to make a first step onto the housing ladder due to unaffordable mortgage rates.
This will also be a cause for concern for those who are coming to the end of a fixed-term deal as their repayments will also increase.
Today’s announcement will have a knock-on effect on the rental market too – it has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further.
The result of this is that rental prices and competition will likely increase at a time when people are already struggling.
With all of this said, my outlook for the second half of this year is much more positive and I think mortgage rates will fall alongside inflation which should bring affordability back to more normal levels.”
Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, comments:
“An eleventh consecutive interest rate hike will come as a blow to the nation’s homebuyers who will now see the cost of securing a mortgage climb that little bit higher at a time when they are already struggling with the wider cost of living.
The silver lining is that today’s increase is the lowest since August of last year which suggests we could be over the hump.
However, we expect that interest rates will continue to rise before they fall, with the general consensus being that they will peak at five percent.”
CEO of Octane Capital, Jonathan Samuels, comments:
“Despite the global banking wobble the message from the Bank of England is clear, they aren’t worried and their sights remain firmly set on bringing down inflation.
This seems like the right call given that UK inflation is persistently higher than other advanced economies in the EU and the US.
However, in seeking to reduce inflation through higher rates we can expect downward pressure on house prices to filter through as homeowners see their fixed rates end and they have to take out more expensive mortgages.”
Jason Ferrando, CEO of easyMoney, comments:
“It was hoped that we had seen the end of the Bank of England’s aggressive approach to curbing inflation, but an eleventh consecutive rate increase suggests otherwise.
With the rate of inflation also rebounding despite predictions that it would continue to fall, the likelihood is that today’s rate increase isn’t the last one we’ll see.
Of course, while higher interest rates won’t be welcomed by those looking to borrow, the flipside is that those with money to invest stand to see a greater return and this is one positive, at least.”
Managing Director of Apex Bridging, Chris Hodgkinson, comments:
“Interest rates are now at their highest since October 2008 and this will understandably have an impact on the purchasing power of the nation’s homebuyers.
We’ve already seen house prices cool since September of last year as a result of higher mortgage costs, with buyers no longer borrowing beyond their means in order to climb the ladder.
However, while they are now treading with greater caution, the increased cost of borrowing certainly hasn’t deterred them and, all things considered, the property market remains in very good shape despite the wider economic picture.”
Co-founder and CEO of Wayhome, Nigel Purves, comments:
“We’ve already seen how increasing interest rates have brought uncertainty to the mortgage sector and it’s the nation’s first-time buyers who have been hit hardest in this respect.
Not only are they facing the tough task of accumulating a deposit on the ever increasing cost of a home, but the number of higher loan to value products has also reduced, while the monthly cost of repaying a mortgage has climbed.
It’s a bleak outlook, to say the least, and one that will be all the bleaker following today’s decision.”
Commenting on the BoE’s decision to raise rates by 0.25% to 4.25%, Marc Cogliatti, Head of Global Capital Markets at Validus Risk Management, said:
“As widely expected, the Bank of England raised rates by 0.25% at today’s meeting, taking the base rate to 4.25% — its highest level since 2008.
The decision comes in the wake of a higher-than-expected UK CPI reading, which reaffirmed the dilemma facing the MPC.
On the one hand, they want to avoid heaping undue pressure on the UK consumer at a time when everyone is having to overcome the rising cost of living.
But on the other, the committee needs to ensure that inflation does not escalate further, therefore adding to people’s woes.
Although another 25 bps hike is fully priced into the market by June, there is little expected beyond there.
In our view, this underestimates the risk of rates having to go higher in the months ahead to avoid inflation expectations becoming further embedded and CPI spiralling further out of control.
The FPC’s assessment is that the banking system is ‘resilient.’
If the MPC are not concerned about the banking system, it is a further reason why they might feel comfortable raising rates again in the months ahead.”
Paula Higgins, CEO of HomeOwners Alliance, says:
“The Bank of England made its 11th consecutive hike in the base rate, taking it from 4% to 4.25% today.
And if you’re looking for a mortgage, it’s more important than ever to move quickly because we’re continuing to see the cheapest rates pulled from the market.
The best mortgage rates on 2 year and 3 year fixes today are up compared to what was available at the start of March 2023.
And while the best rate available on a 5 year fix has nudged down compared to the start of the month if you’re remortgaging, no one knows how long any rates on offer today will be available for.
But when it comes to what’s going to happen next for mortgages?
It’s a case of watch this space.
Lenders are eyeballing each other to see who will act first in offering the best new deal.
As they test the waters, we’ve seen new cheap rates on offer only to have them quickly pulled again by the lenders, so homeowners on the lookout for the best deal need to act fast.”
Adrian Anderson, Director of property finance specialists, Anderson Harris, comments:
“Mortgage holders hoping that the Bank of England would pause the interest rate rises were dealt a blow yesterday by the surprise leap in inflation to 10.4% in February 2023.
Today’s rate rise to 4.25% is consistent with the Bank of England’s plan to battle inflation but it means no gain, just more pain for mortgage holders who are already squeezed.
This will be particularly challenging for homeowners who have chosen to take a variable rate mortgage in the short-term, in the hope that inflation reduces and they can select a lower longer term fixed rate than what is available now.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:
“While 4.25 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, several lenders have reduced their fixed-rate mortgages in the past few days on the back of declining Swap rates, with five-year fixes now cheaper than base rate.
Those on base-rate trackers will find their mortgage rate increase by 25 basis points.
A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 4 per cent will see that rise to 4.25 per cent, with monthly payments rising from £1,320 to £1,354.
The cumulation of 11 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 £943 in December 2021, when base rate rose from 0.1 per cent to 0.25 per cent, to £1,498 today.
With a variable-rate deal, the link between the lender’s variable rate and base-rate moves are less transparent.
The lender may decide to pass on none, some, all or even more than the base-rate rise.
Buyers who believe fixed rates will continue to fall may wish to consider a variable/tracker rate product with no early repayment charges, moving onto a fix should rates become more palatable.
However, if you can’t afford to be wrong – that is, if rates were to rise, you would struggle to pay your mortgage – then a fix would be the sensible option.
With so much volatility in the markets, it is more important than ever that borrowers seek advice from a whole-of-market broker.”
David Alexander the chief executive officer of DJ Alexander Scotland Ltd, part of the Lomond Group which is the largest lettings and estate agency in Scotland, comments:
“I do wonder what the point of the latest increase in base rates is.
We now know that the country will not go into recession.
We also know that inflation is set to fall substantially in the coming months.
Yet a very small increase in inflation this week has prompted a further hike in interest rates from the Bank of England.
By the time the impact of this rise filters through to the market inflation is likely to be down several percentage points and these multiple increases will actually be doing more harm than good.
This all smacks of using a hammer to crack a nut and I would have thought, with a slowing housing market, that the most sensible action would have been to keep interest rates on hold and continue to watch to see what happens with the economy.
If inflation suddenly drops by 1% next month will they then decide to reduce interest rates in response.
I believe that the Bank of England has been too interventionist over the last year and have sought to micro manage the economy in a way which simply doesn’t work.
A little less action on rates and a bit more conversation explaining the benefits of rate stability would be more beneficial for the economy and the consumer.”
Mohsin Rashid, CEO of ZIPZERO, comments:
“Yesterday’s surprise announcement that inflation is once again rising quashed any possibility of the Bank pressing pause on interest rate hikes.
The issue right now is not that no one can win, certainly energy companies are making a fortune, but that too many are losing.
For homeowners on variable mortgage interest rates, this latest hike is yet another blow which may lead to repossession.
Meanwhile, households cannot continue to bear enduring inflation.
The persistent rise of essential goods, especially food which yesterday’s figures revealed as a predominant perpetrator of overall inflation, is pushing households into poverty; people have run out of room to cut costs, and many are now having to skip meals.
It is, therefore, imperative that the Bank does everything it can to tackle inflation.
However, the damage these decisions inflict upon households is unforgiving.
With support shortcoming, those seeking to improve their financial security must search for novel tech solutions which can unlock new money-saving opportunities.”
Lily Megson, Policy Director at My Pension Expert, comments:
“Yesterday’s shock jump in inflation may have tipped the balance, encouraging this further hike in interest rates. Consumers’ reactions will likely be mixed.
Rising interest rates would typically be beneficial for savers and pension planners.
However, the base rate is still less than half the rate of inflation, meaning savings are losing value in real terms, which is placing relentless pressure on millions of people’s finances.
It comes as little surprise, therefore, that My Pension Expert’s own research found that over two fifths (43%) of people believe that the current economic environment is derailing their financial plan.
Elsewhere, over a third (34%) of Britons cite rising interest rates as the reason for delaying their retirement.
In such uncertain times, it is vital that everyone – not just society’s most affluent – feel able to safeguard themselves from economic uncertainty.
So, it is important that they have access to the right support.
From clear, jargon-free information to accessible independent financial advice, the government, regulators, and the financial services industry itself, must work together to ensure everyone has the help they need to weather this financial storm.
In doing so, Britons will be able to better understand their financial situation and make informed decisions to protect their financial future.”
Jatin Ondhia, CEO of Shojin, comments:
“Today’s interest rate decision was on a knife-edge. The stakes were so high with elevated tensions across the US and European banking systems and yesterday’s shock rise in inflation – this all undoubtedly turned the heat up on the Bank of England, and it is telling that it opted to stick to its tough line of hiking interest rates to curb the cost-of-living crisis.
Those hoping for a respite from tighter monetary policy may have a longer wait ahead than anticipated, as policymakers grapple with the dual task of confronting inflation and easing bank jitters.
As such, in the current climate, investors must stay focused on their individual goals, assess the risk exposure they are comfortable with, and ensure they are using all the tools and techniques at their disposal to protect their wealth against uncertainty and changing market conditions.
If they do, they could find new opportunities amid all the turbulence. From diversification to tax efficiency, agility will be the watchword as the foggy conditions persist.”
Avinav Nigam, cofounder of real estate investment platform, IMMO, comments:
“This latest increase in interest rates was expected given February’s uptick in inflation to 10.4 per cent.
Unfortunately, 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.
Even so, a significant reduction in property prices is not anticipated since demand for homes is strong and continues to grow.
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 further still.
Higher interest rates further reduce aspiring homebuyers’ ability to afford to purchase a home, reducing demand.
The result of this is more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock.
Institutional investors appreciate that as interest rates rise, investing in and improving rental housing makes even more sense commercially and socially.”
Alex Lyle, director of Richmond estate agency Antony Roberts, comments:
“A hold in base rate would have been very well received, helping support the momentum we are currently seeing in the housing market, with prices holding up on large family homes with A-star addresses and the volume of sales in the first quarter up considerably compared with the same period last year.
Even though some areas have proven remarkably resilient to increasing interest rates, this has been less the case the higher they have risen. Further rate rises are most unhelpful so hopefully base rate is close to its peak.”
Tomer Aboody, director of property lender MT Finance, comments:
“Following the unwelcome news that inflation has risen again, it was inevitable that interest rates would have to follow suit in order to try to get the former under control.
While the government’s target of halving inflation by the end of the year might now look slightly optimistic, many believe that the right course of action is being adopted in the background.
There are concerns that further rate rises could result in further issues for the banks, but let’s hope there is enough stability to counter that risk and that this rise is the penultimate, if not the last, before the Bank can start reducing base rate.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:
“There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the Bank would trust in its own data and leave well alone.
Activity is slowly beginning to pick up after a very quiet last quarter of 2022 and the housing market is so important to overall economic prosperity.
Of course, it is important to reduce inflation as far as possible in view of its impact on buyer confidence to take on debt.
Overall, the economy still feels fairly weak as real incomes are falling so we would have liked to have seen at least one month without a rate rise.”
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