Interest Rates - Bank of England reveals latest decision

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.”

This is how Rightmove’s mortgage expert Matt Smith responds: “Over the last couple of weeks, average fixed-rate mortgages have been slowly edging up in anticipation of today’s rise of 0.25 per cent in the Bank of England Base Rate. There is unlikely to be any immediate changes in lender rates based on today’s decision, and lenders are instead likely to wait to see what the impact of the Bank’s comments on the outlook of the economy have on swap rates. An average five-year fixed 85 per cent Loan To Value mortgage rate is now 4.52 per cent, up from 4.44 per cent last week.

 "To put this into context, this amounts to a difference of £14 a month for someone purchasing an average property and spreading the cost over 25 years. So, while we may continue to see fixed-deals fluctuate slightly up or down in the short-term, buyers coming to market soon may find that the amount they need to repay each month doesn’t change significantly.

“Those on a tracker mortgage will be more disappointed with today’s news, as they may have thought that the Base Rate had peaked in March given some of the positive signs for the wider economy, and this is another cost they will need to factor into their monthly budget when the full rate rise is passed on.

“Buyer demand is now higher than pre-pandemic levels, most notably in the typical first-time buyer sector, so it is likely we will see lenders try to remain competitive to meet this demand. We’re also starting to see creative ways some lenders are trying to help segments of the market get onto the ladder with the launch of Skipton Building Society’s 100 per cent mortgage product. While it is clearly designed to target a very specific segment of the first-time buyer market, given the affordability challenges many first-time buyers face, short-term innovations such as this are welcome to try and help more would-be first-time buyers own a home."

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.”

Nick Leeming, chairman of Jackson-Stops, comments: “Although only incremental, the decision continues to move the dial in the favour of savers not borrowers. Adding further grit in the gears for first-time buyers, this news will also be disappointing for anyone needing to remortgage.

"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.”