By Following the Bank of England’s decision to increase the base rate by 0.5%, the seventh consecutive increase since the end of last year, setting the current rate at 2.25%, industry experts share their thoughts on how this might impact the property sector and wider UK economy.
Simon Gammon, managing partner at Knight Frank Finance, comments:
“Today’s hike further increases the likelihood we will see further increases in mortgage rates during the months ahead.
Headline five year fixed rates sat at 1% as recently as December.
Now you’ll be lucky to find any five year money lower than 3.5%.
If pricing in financial markets turns out to be correct and we do see the base rate reaching 4% around the middle of next year, we’d expect the best five year products to be around 5.35%, which will be a shock for borrowers rolling off two year deals.
All of this is going to exert pressure on housing market activity as the year progresses, though it will be offset to some extent by the mooted cut to stamp duty, should it come to pass.
Borrowers that act quickly stand to save a lot of money. Several lenders now allow borrowers to lock in deals as many as nine months in advance.”
Tom Bill, head of UK residential research at Knight Frank, comments:
“The forces of gravity continue to build for UK house prices, which will inevitably return to earth.
The cost of a five-year fixed-rate mortgage has almost tripled over the last year and this upwards trajectory will continue.
Almost four million first-time buyer mortgages have been issued since 2009, which is a large group of homeowners who don’t know what it’s like when monthly interest payments rise meaningfully.
There is still backed-up demand in the housing market, which will be prolonged by a stamp duty cut.
However, any saving is likely to be eclipsed by rising rates. What the government gives, the Bank of England more than takes away.”
Paresh Raja, CEO, MFS, comments:
“The property market is being pulled strongly in two different directions.
Today’s interest rate hike is significant, impacting both prospective homebuyers along with existing mortgage customers; this threatens to act as a bucket of cold water on what remains a red-hot market.
But then, the strong rumours of a stamp duty cut in tomorrow’s mini budget will spin matters in another direction.
Coupled with the decision to scrap affordability tests, it is clear that the Government will do all it can to fuel a lucrative, buoyant property market.
We saw it with the stamp duty holiday during the pandemic – when backed into a corner, the Conservative Government is keen to err on being pro-property.
It will be fascinating to watch how rising interest rates and high inflation play off against the touted stamp duty cut.
I suspect, as recent years have shown, the property market will continue to thrive in the face of significant demand and limited supply.”
Jatin Ondhia, CEO, Shojin, comments:
“The continued rise of interest rates will naturally cause a stir across financial markets.
It’s clear the Bank of England is fighting inflation six ways to Sunday – it is unlikely to remove its foot from the economic brake pedal for the foreseeable future.
So, even though we have grown somewhat accustomed to it, the turbulence of rising rates and inflation will spook some investors.
When it comes to navigating the testing climate, agility and diversification will be particularly important.
This is no time for knee-jerk decisions, yet at the same time, a laissez faire approach could leave investors over-exposed to the current macroeconomic headwinds.
Investors must have the foresight to evaluate their strategies against the complex dynamics at play and consider which assets are likely to offer the best shelter.
Against the current backdrop, it should be expected that many investors will look to balance traditional and alternative investments.
Real estate could prove particularly popular if indeed the Chancellor does announce a stamp duty cut in tomorrow’s mini-Budget.
Bricks and mortar always attract significant demand from domestic and international investors, but I would predict this demand will rise notably if tax incentives are introduced.”
Jeremy leaf, north London estate agent and a former RICS residential chairman, comments:
“From our experience on the ground, the impact of the interest rate rise will be felt most with regard to confidence to move and take on debt.
The increase will impact first-time buyers and new borrowers particularly, bearing in mind approximately 80 per cent of borrowers are on fixed rates.
However, with UK Finance forecasting that 1.8m deals are due to end at some point next year, there will be plenty of borrowers looking for new mortgage deals at a time when rates are likely to be considerably higher.
Although rates are still low compared with their historical average, the impact is exacerbated by continuing worries about inflation and the economy generally.
The longer the climate of higher interest rates persists, the more likely it is that people will consider selling, leading to a softening in prices.
However, it is worth remembering that around 50 per cent of homeowners are not dependent on mortgage finance at all so will be unaffected.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:
“While a 50 basis points rate rise does not feel as aggressive as the 75 basis points that was mooted in some quarters, it still means a considerable increase in monthly payments for those on variable-rate mortgages and comes on the back of six interest rate rises since December.
It means a borrower with a £300,000 variable-rate mortgage will have to find an extra £1,500 a year.
With the energy price cap due to rise again at the beginning of October, some households will really struggle.
However, we don’t believe rates will or should go much beyond 3 per cent, despite fears that they could go higher.
If the Bank of England were to hike interest rates to say 4 or 5 per cent, it risks causing greater problems than those it is attempting to control.
Mortgage deals can be reserved up to six months before you need them so it may be worth securing a new product now which can be moved onto once your existing deal ends.
We are being approached by many borrowers on fixed rates considering paying early redemption penalties in order to secure another fix sooner rather than later.
This may or may not be in your best interests, depending on the rate and length of time left to run, so it is important to seek advice from a broker.”
Avinav Nigam, cofounder of real estate investment platform, IMMO, comments:
“Hiking interest rates is one way to curb spiralling inflation by reducing consumer demand.
However, it has a severe impact on mortgages, as the rate of borrowing climbs even higher. Coupled with the affordability crisis, this will make owning a property even more out of reach.
It most significantly impacts the circa 900,000 borrowers on variable-rate mortgages, as well as the 1.1 million on standard variable rates.
We could see an increase in the supply of properties coming to market as mortgages become unaffordable.
There’s an increased risk of mortgage defaults, affecting consumers’ lives directly.
This all means that we are set to see a shift from a sellers’ market to a buyers’ market over coming months.
Cash buyers and investors with more disposable money will find it easier to buy properties.
Rising rates give consumers less flexibility when it comes to housing and mean they have to move towards renting as buying becomes unaffordable.
The need for professional landlords to provide safe, affordable and quality homes for renting is stronger than ever.”
Tomer Aboody, director of property lender MT Finance, comments:
“With the trend in rising interest rates continuing, the property market is slowly showing signs of calming down from the frenzy of the past couple of years.
With property values at record highs, a continuous upward curve in pricing isn’t sustainable or helpful and the return of more realism is long overdue.
However, with fewer buyers but also far fewer sellers, we are still seeing activity in the housing market, especially when it comes to prime assets.
Could this be the perfect time for a restructure or change to stamp duty?
As we saw during the pandemic, any change stimulates the market, allowing more sales and transactions.
While a stamp duty holiday usually leads to an increase in prices, a big rise in values is unlikely due to the higher cost of living and restraints on affordability caused by rising interest rates.”
Anthony Ward Thomas, founder of removals company Anthony Ward Thomas, comments:
“Soaring interest rates, on top of higher energy, fuel and food bills, are a growing concern for borrowers.
Those with mortgages are clearly worried as to just how much they will have to pay for them, with our research showing that a quarter of borrowers are concerned that they would not be able to afford their mortgage were rates to hit 5 per cent.
Today’s 50 basis points increase in rates, taking the bank rate to 2.25 per cent, makes that scenario a little more likely.”
Commenting on the UK’s biggest interest rate hike in 33 years, Douglas Grant, Group CEO at Manx Financial Group PLC, said:
“Another rise in UK interest rates today is unavoidable.
It continues to hit levels not seen for decades as inflation keeps on soaring, exacerbating the cost of living crisis.
We believe that demand for working capital is set to climb to unprecedented levels as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and record energy price hikes.
With the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.
Furthermore, the Government’s emergency intervention on energy costs for SMEs is great news for UK business and shows that it is taking urgent warnings from a variety of organisations seriously.
We do however believe that more needs to be done. Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last couple of years, were unable to access it.
Indeed more than a quarter have had to stop or pause an area of their business because of a lack of finance.
SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy in terms of growth at a time when it is needed the most.
The amount of growth that is being sacrificed is significant and will require new solutions which are designed to address this funding gap.
The extension of Recovery Loan Scheme (“RLS Phase 3”) was encouraging for UK business. RLS, which Conister was accredited for in August last year, has provided the necessary catalyst that many sectors required to thrive.
As demand for working capital soars to new highs, more businesses desperately require liquidity provisions to counteract record inflation levels, rising interest rates, supply chain issues and increases in wages.
With the cost of borrowing set to increase, many SMEs are facing their own cost of living crisis.
For some time we have been calling for a sector focused permanent government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs.
As the government looks for other ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. We very much hope this is something that becomes a reality.”
CEO of Alliance Fund, Iain Crawford, commented:
“Another base rate increase was anticipated, albeit delayed by a week, and while a half a per cent jump may certainly seem cause for concern, the cost of borrowing remains very palatable for those looking to invest their hard earned money into bricks and mortar.
Despite the wider pressures of economic uncertainty and the increasing cost of living, we’ve seen an unwavering level of buyer demand continue to cultivate positive house price growth across the UK market and we can expect this buoyancy to remain for the foreseeable future.
The real issue facing the nation’s homebuyers at present isn’t the increased cost of securing a mortgage, but the lack of suitable stock available to them when looking to buy.
Unfortunately, the government looks set to keep their head in the sand in this respect, ignoring the burning issue of housing supply and instead choosing to fuel demand with a cut to stamp duty.”
CEO of Octane Capital, Jonathan Samuels, commented:
“While generations of homeowners have only ever experienced a sub one per cent base rate, they are quickly becoming accustomed to the increasing cost of borrowing with a seventh consecutive increase by the Bank of England today and the largest jump in some years.
The average homebuyer is already paying between two to three hundred pounds a month more on the cost of their mortgage versus the end of last year and we’ve already seen many lenders preemptively react to today’s delayed increase so this cost is unfortunately set to climb even further.”
Founding Director of Revolution Brokers, Almas Uddin, commented:
“Not only is the cost of repaying a mortgage our most substantial household outgoing, this cost has also seen the second largest increase in the last year, with just energy bills increasing at a higher rate.
This is, of course, a worry for many homeowners who are already stretched thin financially and have one eye on next month’s energy cap increase.
The bad news is that yet another base rate increase will do little to ease the current situation and so those currently looking to buy, or those on a variable rate mortgage, can expect the cost of borrowing to continue to climb.”
Managing Director of Barrows and Forrester, James Forrester, commented:
“Increasing interest rates are certainly a worry for homebuyers who are now seeing an end to the prolonged period borrowing affordability enjoyed for many years.
However, interest rates still remain historically low and the property market continues to go from strength to strength.
So while the current cost of living crisis may cause some to think twice before climbing the ladder, it remains one of the smartest and safest investments you can make, despite the increasing cost of repaying your mortgage.”
Director of Benham and Reeves, Marc von Grundherr, commented:
“Not only has the cost of running our homes increased dramatically in recent months, but the temptation to over borrow while rates were low is now coming back to haunt many homeowners.
Those who purchased a property during the pandemic market boom and have come to the end of their fixed mortgage term, as well as those on a variable rate mortgage, are now being hit with both barrels as the monthly cost of their mortgage climbed considerably.
However, while this is sure to add a degree of caution going forward, it’s unlikely to dampen the appetite of the nation’s aspirational homebuyers, which will ensure that the property market remains resolute despite the wider economic landscape.”
Managing Director of HBB Solutions, Chris Hodgkinson, commented:
“We’ve seen interest rates increase consistently since the first rise in December of last year and while this is yet to rock the boat where house prices are concerned, a seventh consecutive increase will have homebuyers feeling a little queasy, to say the least.
An undertone of economic uncertainty has already dampened buyer appetites to some extent and with the cost of borrowing now substantially higher than it was just a few months back, we can expect the level of buyers entering the market to decline.
When this happens, home sellers will find that they may well have to lower their asking price expectations and this period of adjustment is likely to be an uncomfortable one, with sales falling through due to the market turbulence caused.”
Adrian Anderson, Director of property finance specialists, Anderson Harris, comments:
“The Bank of England have increased UK interest rates to 2.25%, this is a 50 basis points hike and takes borrowing costs to their highest levels since November 2008.
The Bank’s monetary policy committee were split 5-4 on the rate hike.
Experts are anticipating more large rate hikes later in the year and into 2023 which is going to heap misery on mortgage payers and have a severe impact on households’ disposable income.
The message to mortgage borrowers is very simple – don’t wait, take action now as its likely the situation will get worse in the short term.
Borrowers are actively shopping around and seeking to fix their mortgage payments now before the monthly mortgage pain gets even worse.
This is a huge reality check.
The landscape has changed quickly, we are no longer living in a period of ultra-low interest rates with plenty of disposable income; our outgoings are increasing faster than our income and we are going to have to adjust quickly and get used to the new norm.”
Giles Coghlan (Chief Market Analyst, HYCM) comments:
“The Bank of England’s (BoE) decision today to raise the base interest rate by 50bps was a disappointment to the STIR markets that saw a 93% chance of a 75bps hike.
This resulted in an immediate GBP sell off following the BoE’s release. With inflation at its highest level since the early 1980s, the Monetary Policy Committee (MPC) have to act decisively to try and tackle problematic inflation.
However, by being too aggressive on inflation, there is a danger that the BoE stagnates UK growth, which is perhaps why the BoE took a more conservative approach today.
Since their last meeting, Liz Truss has unveiled her emergency energy package which is projected to cost around £100 billion.
According to Governor Bailey, the UK energy price guarantee will significantly limit further inflation, supporting demand relative to August’s forecasts.
With the Fed raising their base level by 75bps last night for the third time in a row, and raising the terminal rate to 4.6% vs the prior terminal rate of 3.8%, the BoE may have resisted the urge to follow suit to be more mindful of the coming UK recession.
With the pound already on its knees, there is a danger that the BoE’s decision creates a stagflationary environment in the UK by hiking rates as growth is slowing.
With this in mind, the performance of GBP following today’s decision should be keenly monitored by all investors as there is still more of a sell bias in place for the GBP moving forward.
All eyes now turn to the mini-budget tomorrow.”
Commenting on UK and US interest rates rising, Toby Sturgeon, Global Head of Fiduciary Investment Services at ZEDRA, said:
“The Bank of England this morning voted 5-4 to increase base rates from 1.75% to 2.25% following their delayed announcement.
It was interesting to note that three members of the Monetary Policy Committee voted to raise rates by 75 basis points.
The Bank was keen to contain inflation and also to bolster Sterling whilst perhaps mindful of a potential clash with the mini budget announcement from the new finance minister on Friday.
The inflation rate is currently 9.9% and it is now expected to peak at 11% supported by the announcement from Liz Truss capping energy prices.
Overnight policymakers in the US unanimously raised rates by 0.75% for the third meeting in a row, fuelling fears of a hard landing for the US economy.
Their guidance was also for future hikes which spooked equity markets initially but calmed as Chairman Powell spoke.
The Fed now sees rates at 4.4% by year end, 1 percentage point higher than projected in June.
The US Dollar index rose by over 1% following the Fed announcement pushing Sterling down to a low just above $1.12 Sterling regained ground this morning before briefly falling back below $1.13 after the BoE’s decision.”
Nick Whitten, head of UK Residential and Living research at JLL comments:
“Of course, in the longer term the intention of this rate rise is to curb inflation, but in the short-term households are facing significant increases in the cost of living driven by food and fuel alongside wage rises which in many cases are not keeping pace with household expenditure.
While some households will be deterred from moving due to higher rates, others will be keen to lock in at current (albeit higher) rates rather than risk further rate rises in the months to come.
In the longer-term higher interest rates will of course be a barrier to some households.
This combined with the end of Help to Buy will undoubtedly impact on first time buyer’s ability to enter the market.
With higher borrowing costs, relentless rises in the cost of living and recent house price appreciation all acting as barriers.
Conversely, we expect existing owner occupiers, particularly those buying with cash will increase as a proportion of sales.”
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