INDUSTRY REACTS as BoE raises base interest rate to 0.25%

Likely rise in mortgage rates in the medium term fails to worry agents as market continue to motor despite rise of Omicron virus variant.

The Bank of England has increased its base interest rate by 0.15% to 0.25% after a meeting of its Monetary Policy Committee voted eight to one in favour of the move.

This is the first increase in the base rate since June 2018, when it increased from 0.5% to 0.75%.

Citing continued weak GDP figures but rising inflation caused by the ongoing pandemic, which during November hit 5.1% and is expected to stick at around 5% until the Spring as Covid problems continue to push up prices for many goods and wages too.

It also noted that, although there has been ‘normalisation in housing activity measures following the end of the stamp duty holiday’, house price inflation continued to be strong.

This suggests the Committee members hope that any increase in lending costs for home buyers and landlords will help dampen demand and bring down house price inflation.

Industry reaction

‘Creeping up’

eleanor bateman propertymark“The increase in base rate to 0.25 per cent is a small and necessary step and one that most had anticipated for some time,” says Eleanor Bateman, Policy Officer at Propertymark.

 “Mortgage rates have been creeping up over the past few months, and while those on variable rates will see payments increase, the cost of borrowing remains low relative to historic levels.

“Though, traditionally, the winter months see a decline in activity, our Housing Market report shows sustained demand with average sales agreed maintained to the end of October.

“With indications that lifestyle factors are continuing to prompt many into making a move, we do not expect today’s announcement to have a significant, negative impact on the market.

‘Couldn’t make it up’

lewis financial shaw“The Bank of England really can’t read the room, can they? Prime the market for a rise in November, then don’t. Raise the following month when nobody expects it as our economy is rapidly closing thanks to Omicron,” says Lewis Shaw, former Your Move mortgage broker and now founder of Shaw Financial Services.

“The Government and the Bank of England are a headless chicken. Anyone that needs to remortgage should be getting on with it now.”

‘Shrug off Omicron’

simon gammon“By raising the base rate it’s clear that the Bank of England believes the economy will shrug off most of the effects of Omicron,” says Simon Gammon, MD of Knight Frank Finance.

“Getting a grip on rising inflation appears to be the number one priority for the Bank of England.

“Our advice to borrowers is to get an offer locked in now.”

‘Change in direction’

Link to recruitment news“The real significance of this rise surrounds whether it marks a genuine change in direction for the Bank of England but that won’t be known for some time,” says Nicky Stevenson, MD of Fine & Country.

“The pace and frequency of rate rises is the big unknown but this move will focus the minds of borrowers on extending the length of the fixed rate deals they lock into.

“The markets are currently pricing in further increases to around one per cent before the end of next year. This is unlikely to knock the housing market completely off balance.”

‘Statement of intent’

“This rate rise may not be significant but it is a clear statement of intent,” says Vanessa Hale, Head of Insights and Residential Research at Strutt & Parker.

“The rise has been a long time coming, and with inflation now at decade high levels, there really is little alternative.

“The rate rise has been priced in to mortgages, and with fixed mortgages making up around 80% of the current market, the housing sector is unlikely to be impacted too dramatically.

“The reality is that demand for housing continues to outstrip supply which will sustain prices for 2022. But with the cost of living continuing to rise, this could have an impact on the housing market for the medium term.”

‘Positive for confidence’

Link to Franchising feature“An interest rate rise has been priced into the market in the costs of mortgages and buyers’ expectations since before the BoE’s last announcement, when it was a surprise to see them held,” says Dominic Agace, Chief Executive of Winkworth.

“A small increase in interest rates, while still keeping at historic lows to tackle a headline inflation rate of five per cent, may well be more positive for confidence and the property market than rates continuing to be held at these record low levels.”






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