Interest Rates - Bank of England reveals latest decision

Posted on Thursday, May 11, 2023

The Bank of England has announced its latest decision on base rate.

This has been increased by 0.25 per cent to 4.5 per cent. It’s the 12th successive increase, taking it to the highest level since 2008.

Nathan Emerson, chief executive for Propertymark, says: “For those on fixed rate mortgages, this latest increase is likely to have no immediate effect, and for those looking for a new fixed rate, they should also see little change in the market offering due to it being already factored into banks’ pricing.

“However, for those on tracker mortgages, like many landlords in the buy-to-let market, this means another rise in outgoings. In the rental sector, a rise in the cost of supplying a home will put further pressure on rents and may see some investors forced to exit the market altogether, further worsening the extreme supply and demand imbalance seen already. It is imperative that the UK Government urgently do more to support homebuyers and landlords with their rising costs, especially as interest rates look to remain high into the start of next year.”

Rachel Springall of independent mortgaqge monitoring service Moneyfactscompare, says: “The latest base rate rise will be disappointing news for borrowers who have been unable to refinance onto a fixed rate mortgage, yet another blow to their monthly outgoings amid a cost of living crisis. Those aiming to lock into a fixed rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5.0 per cent, this may still be unaffordable for some.

"The average five-year fixed mortgage rate is lower than the two-year fixed, which may encourage prospective borrowers to lock down their rate for longer. However, fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit on their revert rate waiting for cheaper deals to surface.

"Whether fixed rates are destined to remain volatile or not, there is still an incentive for borrowers to fix, as the consecutive base rate rises have pushed the average Standard Variable Rate to its highest point since 2007. A rate rise of 0.25 per cent on the current average SVR of 7.37 per cent would add approximately £780 onto total repayments over two years.

“Inflated house prices and the relentless impact of the cost of living crisis will be taking its toll on borrowers, and there may be some concerned about whether this is the right time to take out a mortgage. Seeking advice is vital to ensure borrowers can comfortably afford to refinance based on their own individual circumstances. New buyers looking to get their foot onto the property ladder will still be facing a housing supply shortage and their deposits may not stretch far. These borrowers remain vital to keep the mortgage market moving, so hopefully more positive innovative changes will surface to support these buyers.”

"The industry expectation is that the next few months could draw a line in the sand for further rate rises, to ensure the cost of debt does not create more problems than it is attempting to alleviate. Inflation should start to begin its descent into single figures later this year."

Tom Bill, head of UK residential research at Knight Frank, adds: “The latest rate rise won’t have a huge impact on the housing market but sentiment will be dented if the peak starts to feel further away. For now, after the mini-Budget threw a bucket of cold water over the property market, activity has become lukewarm. House price growth is largely flat, sales volumes hit their low-point in January and the economic backdrop is gradually improving. We expect prices may fall by a few percent this year as higher mortgage rates erode demand but activity will be supported by a strong jobs market, record levels of housing equity and lockdown savings.

"As the general election moves onto the radar over the next 12 months, it may be that political uncertainty curbs demand even as the bank rate and inflation move past their peak.”

Via @LettingAgentToday