Enough Is Enough - should next interest rate rises be delayed?

A senior lettings industry figure says the Bank of England should delay future base rate rises to allow the housing market to stabilise.

After yesterday’s base rate bombshell - a 0.75 per cent rise to 3.0 per cent, the largest single hike in three decades - the BoE made clear that more was to come. 

It forecast that interest rates, based on base rate, would rise to 5.2 per cent in late 2023, before starting to fall back. Inflation is forecast to hit 11 per cent by the end of this year, before dropping back from early 2023 as previous energy price hikes drop out of the calculations.

GDP is expected to fall about 0.75 per cent by the end of 2022. It’s then expected to keep falling through 2023, and the first half of 2024. Meanwhile wages will fall 0.25 per cent behind rising prices this year and 1.5 per cent behind in 2023, and the unemployment rate is forecast to hit 5.9 per cent at the end of 2024 and 6.4 per cent by the end of 2025.

The prospect of further base rate rises against such a volatile landscape has been vigorously opposed by David Alexander, the chief executive officer of DJ Alexander Scotland Ltd, which is the largest lettings and estate agency in Scotland and part of the Lomond Group.

He says: “This substantial increase in base rates will undoubtedly have a serious impact on the housing market. We haven’t seen this scale of increase in decades and the effect on mortgage rates will be significant.

“While I understand the need to control inflation there is a risk that introducing so many interest rate rises over such a short period of time has the potential to destabilise the housing market at a time when the pressures of utility bills, the rising cost of living, and the war in Ukraine have already made the markets wary.

“I think that the Bank needs to hold off from any further interest rate increases for a period of at least six months so that we can see the impact this latest rise has on inflation. What would not be helpful is if these interest rate rises result in the market grinding to a halt. We need prices to slow but not to stop altogether and I fear this large rise risks short-term damage to the housing market.”

Nicky Stevenson, managing director of the Fine & Country lettings agency chain, says: “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.

“[But] 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.”

Meanwhile Jonathan Rolande, from the National Association of Property Buyers - who a mo nth ago urged the Bank to stick and not increase rates further - now says the latest rise is “yet another nail in the coffin for the property market.”

He adds: “Tenants aren’t immune to this rise either, because landlords will be looking tto recoup increased costs by increasing rent … I suspect many buy to let landlords are likely to sell up to bag a good price and put profits in the bank for a trouble-free income.”

Stuart Law, chief executive of the Assetz Group of property investment companies says: “Even the most committed landlords will now be wondering how they will be able to fund their investments as buy to let mortgage costs soar on top of recent tax rises aimed at landlords. Other options do exist for keen property investors that work much better in the context of the current market conditions and policy environment.”