REACTION: Bank of England hikes base rate to whopping 3%

The Governors of The Bank of England today voted to raise interest rates by 0.75% from 2.25% to 3-% – the highest one day rise for three decades.

The hike means that some mortgages – especially those on tracker and variable rates – will spike once more and new deals will become less affordable to would-be movers.

In a monumental meeting some nine members of the Monetary Policy Committee made the decision that will affect millions of homeowners across the UK.

It’s the Bank’s highest single interest rate rise since 1989 as it bids to control inflation.

It is also the eighth time in a row that the Bank has increased rates – less than a year ago the rate was just 0.1%.

LAST MEETING

At its meeting ending on 21 September 2022, the MPC voted to increase Bank Rate by 0.5% to 2.25%.

In the August Monetary Policy Report, the MPC said that the risks around its projections from both external and domestic factors were exceptionally large, given the ‘very large’ increase in wholesale gas prices since May and the consequent impacts on real incomes for UK households and on CPI inflation.

The Bank said: “Since August, wholesale gas prices have been highly volatile, and there have been large moves in financial markets, including a sharp increase in government bond yields globally.

“Sterling has depreciated materially over the period.”

INDUSTRY REACTION

Agents

Jeremy Leaf, north London estate agent and a former RICS residential chairman: “What’s more important for housing market prospects than interest rate movements is the confidence to take on extra debt.

“If home buyers who need a mortgage believe payments are going to rise rapidly, they will sit on their hands. However, just under a third of households have a mortgage and about 75 per cent of these are on fixed-rate deals so the impact will be less immediate.

“However, if this larger movement is regarded as the highest or close to the highest rates are likely to reach then it will begin to bring some much-needed stability.

“At the sharp end, we know the appetite to move remains and not only from those who have to due to debt, death, divorce and downsizing – it’s just a question of when.”

David Reed, operations director at Richmond estate agency Antony Roberts: “First-time buyers, in particular, will be conscious of the impact a further rate rise on their mortgage payments. They may pause while they weigh up the feasibility of plans to buy before Christmas. They may even hold off until the Spring or Q2 and reassess the situation then.

“ preference to continue renting instead of buying will further restrict the supply of rental accommodation coming to market at a time when availability is already acute in many areas.

“The situation is very different for those buyers with a formal mortgage offer. For them, there is a rush to complete on a purchase before the bagged relatively attractive rate expires.”

Nick Leeming, Chairman of Jackson-Stops: “After a challenging September for the markets, today’s decision to raise interest rates again was largely expected by businesses, market spectators and consumers alike. Not entirely unchartered waters for savers, it’s important to remember the pre-financial crash context. While savings and mortgage rates have been objectively low since 2008, this period has been far from the norm by historic standards.

“With the exit of one Prime Minister and the appointment of another, the market has been provided with a sense of calm seeing the pound also stabilise against the dollar. However, striking the balance between raising interest rates and controlling uncomfortably high levels of inflation may lead to difficult decisions for the Chancellor on November 17^th.

Portals

Rightmove’s property expert Tim Bannister: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.

“However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As today’s rise was expected, we don’t think we’ll see any significant changes to new fixed rate deals based solely on today’s interest rate rise.

“Mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments.

“It’s important to look beyond the headline numbers, because, while “like-for-like” mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”

Richard Donnell, Executive Director of Research at Zoopla: “Money markets were expecting a hefty jump in the base rate today. Most borrowers use fixed-rate loans so it’s the cost of 2 and 5-year fixed-rate money for banks that underpins mortgage rates more than the base rate.

“Today’s jump does not worsen the outlook for mortgage borrowers but home buyers need to realise that 4-5% mortgages are set to be the norm in future, not the 1-2% of recent years.”

Property experts

Marcus Dixon, director of UK residential research at JLL: “A further rise in the base rate, while uncomfortable for those not locked into fixed rates, was not unexpected. With it being more a question of when rather than if rates would rise.

“This will of course impact the housing market, albeit this increase was likely already priced into new fixed rates deals and market forecasts.”

“The MPC announcement does not change our outlook. JLL are forecasting that higher interest rates, combined with the winding down of the Help to Buy scheme, will mean we see a 30% fall in transactions in 2023 compared with 2022, around 300,000 fewer sales nationally.“