Prime Resi-Industry Reactions: Bank of England raises interest rates to 5%

Date Published 23 June 2023

'If we don't raise rates now, it could be worse later,' explains Bank of England chief, as interest rates climb to a 15-year high.
The Bank of England's Monetary Policy Committee has raised interest rates
again, by 0.5%. The base rate now stands at 5% -the highest in 15 years, since
April 2008.
Today's hike came in response to new inflation figures, which remain stubbornly
at 8. 7% -higher than expected for the fourth consecutive month, and well
above the Bank of England's official 2% target.
"We've raised the rates to 5% following recent data which shoed that further
action was needed to get inflation back down." explains Andrew Bailey,
Governor of the Bank of England, adding: ''The economy is doing better than expected, but inflation is still too high and we've got to deal with it. We know this
is hard - and many people with mortgages or loans will be understandably
worried about what this means for them. But if we don't raise rates now, it could
be worse later. We are committed to returning inflation to the 2% target and will
make the decisions necessary to achieve that."
An increase was widely anticipated today, but most pundits thought a 0.25%
bump more likely than the 0.5% that came to pass.
The BoE's Monetary Policy Committee meets eight times a year to make a call on interest rates. Today's decision marks the 13th consecutive rate rise, and the fifth of 2023 so far. The next decision is due on 3rd August.
The base rate has climbed rapidly from a historic low-point of just 0.1 % in late 2021.
Such an escalation is causing serious financial problems for many mortgaged homeowners - and is the cause of much hand-wringing amongst economists and property market watchers ...
Industry Reactions
"Inflation continues to be a stubborn old beast remaining higher than expected, and for longer. And this is driving the behaviour of the Monetary Policy Committee who have raised the base rate for an 13th consecutive meeting. To complicate matters, many health indicators for the economy are currently at record highs or lows - there are few in-betweens. For instance, core CPI has reached its highest level since March 1992, regular wage growth is at a record high, the volume of private housebuilding has seen the sharpest monthly decline for a decade and housing rental growth is at the highest rate for 30 years.
"Alongside this, unemployment remains significantly low, which means the majority of mortgaged households can service their rising debt costs and avoid having to sell their home to make ends meet. This will prevent a house price crash with many being forced to tighten their belt in other ways through altering their spending or reducing their savings. The biggest impact of rising interest rates on the housing market is the significant reduction in housing sales, which are down by 30% on last year and are likely to remain depressed for some time to come.
"But rising rates do not just impact mortgaged homeowners. JLL estimates that there are up to 500,000 highly leveraged buy-to-let landlords who are particularly feeling the pressure from rising rates. They are typically passing on the costs in the form of higher rents to private renters who are feeling the crunch and have no other housing options in what is a severely supply constrained rental market.
"More than ever before, the UK needs a significant supply-side policy to boost housing construction and ease the pressure."
"It's been a disappointing week for anybody that needs to refinance this year. Markets probably require two or three months of meaningful falls in core inflation before swap rates begin to ease and lenders can pass that onto borrowers via lower mortgage rates.
"That means it'll likely be September at the earliest before we see any decent falls in mortgage rates and that may stretch into 2024 if inflation proves particularly stubborn. Once we do see a couple of positive numbers and swap rates begin to fall, we're confident that lenders will drop rates quickly.
"Mortgage rates have repriced sharply over the past four weeks and we're hopeful that today's rise in the base rate is at least partially baked in."
"Inflation has replaced the mini-Budget as the single biggest headache for the UK housing market. As the financial pain increases for anyone buying or re­mortgaging, it will keep prices in negative territory and a lid on transaction numbers this year. That said, the wage growth that is driving core inflation higher is one of the reasons we don't expect a steep decline in house prices. Record levels of housing equity, the availability of longer mortgage terms, a stable banking system, the political pressure on lenders to show forbearance and the recent popularity of fixed-rate products should prevent a collective cliff­edge moment for the UK housing market."
"Meanwhile, rents continue to be forced higher by a lack of supply, which has been exacerbated by a number of landlords selling up in recent years. A series of tax changes have been politically expedient but economically damaging, with tenants paying the price as a growing number of property owners decide being a landlord no longer stacks up. Rising rates will only exacerbate this situation this year, and upwards pressure on rents is unlikely to relent any time soon."
"Just like the rain, inflation remains a persistent dampener for savers and mortgage borrowers. Just when we have a few days of sunshine and a moment of market reprieve, a storm soon brings us back down to earth.
"Today's commitment to a 0.5% rise demonstrates just how determined the Bank of England is taking the need to curb inflation.
"In the same week that Michael Gove launched his book outlining Levelling Up 2.0, inflation stood firm at 8.7%. Renters, homeowners and housebuilders are all hoping for much clearer direction from the Government on what the future holds for the property market.
"Looking back over the last 20 years, it was in late 2007 that the UK saw 6% mortgage rates consistently average for two-year fix deals. It's clear that the Government and Bank of England need to work much closely together in the coming few months to avoid unwanted consequences."
"We expect the rate rise to have an impact on overleveraged buy to let investors whose increased mortgage payments could lead to their investment making limited profit or even a loss. This could result in some landlords deciding to offload their assets. At this stage, we haven't yet encountered homeowners who have been forced to sell up but, if rates continue to rise, some owners may be forced to review the situation and weigh up their options. At the same time, demand for properties in London continues to stay strong as the capital remains a hotspot for a variety of buyer demographics including international buyers."
"Today's interest hikes are a clear warning that costs are continuing to go up and this will of course affect people's desires to make major changes, including moving house.
"This overall negativity does not optimise sentiment and sellers who are serious about selling need to understand that price expectations will be affected and they should be realistic on pricing. We really urge buyers and sellers to map out their plans clearly and ensure they fully understand the various taxes, rates and price implications. Anyone considering buying or selling should consider speaking with an IFA to fully understand the implications of fixed and variable rates, before deciding on the best course of action for them personally.
"Rents are also likely to increase due to increased demand, as would-be-buyers choose to hold off in the hope that rates might start to fall later this year. In turn, existing landlords will potentially seek to lock tenants in for longer, while investors may be put off taking on any more rental properties due to the charges and rates on buy to let mortgages.
"The majority of our work for our UHNW clientele has been based around a deep analysis and advice based on our expertise of having worked through several of these cycles. What is required right now is guidance not smoke."
"The market remains in fairly good form considering interest rates are at their highest since 2008 and we expect this will now bring about a reversal in market fortunes.
"The more inflated areas of the market, such as London, largely trailed their more affordable counterparts where pandemic house price growth is concerned.
"However, buyers in these regions are better placed to absorb higher borrowing costs and so we expect the likes of the London market to remain largely unfazed going forward.
"As a result, we expect stronger market performances to materialise compared to some of the other more affordable areas of the market."
"As interest rates hit 5 per cent, the Bank of England should now hit the pause button.
"There is a strong argument for pausing rate rises for now, giving the market time to settle down and adjust. Consecutive base rate rises have been painful and done little to stem inflation which is proving to be worryingly stubborn; it's time for a different approach, letting the impact of the rate rises so far take effect, rather than causing continued anxiety and distress for borrowers.
"Those on base-rate trackers will find their mortgage rate increase by a further 50 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 4.5 per cent will see that rise to 5 per cent, with monthly payments rising from £1,390 to £1,461.
"The cumulation of 13 successive rate rises is significant. A borrower with a
£250,000 mortgage on a tracker pegged at 1 per cent over base rate will have seen their monthly payments rise from £943 in December 2021, when base rate rose from 0.1 per cent to 0.25 per cent, to £1,611 today.
"Fixed-rate mortgage pricing continues to edge upwards with many borrowers, particularly those due to come off cheap fixes, in for a real payment shock. Our advice is to plan ahead as much as possible and take action now. Rates can be booked up to six months ahead; if when you come to remortgage, rates are cheaper, you can move onto another product.
"If you are not due to remortgage for a year or two, start paying down other debt, cut unnecessary spending and consider overpaying on your mortgage if possible to lessen the pain when the time comes.
"With so much volatility in the markets, it is more important than ever that borrowers seek advice from a whole-of-market broker."
"As of yet, the Bank of England's attempts to curb inflation haven't quite gone to plan and so today's increase was to be expected.
"While a half a percent jump may seem substantial, it should help the Bank of England regain a grip over the situation at hand, as currently, it trails the Federal Reserve and needs to catch up if we want to see inflation fall like it has in the United States.
"So all things considered, today's increase is probably appropriate, although this isn't the news the nation's borrowers were hoping for."
"It's undisputed that homeowners and first steppers will be facing the consequences of rising interest rates as borrowing costs increase. However, with this comes a further shift towards more realistic and sustainable house prices down from the spike seen during the pandemic.
"Confidence from sellers is undeterred with our latest data showing a 70% increase in properties available for sale compared to April 2022 and in turn, this is providing buyers more room for negotiation as well as more choice."
"Lenders are ready to support customers who are feeling the strain from the rising cost of living. Over 80 per cent of homeowners are on fixed rate deals and will be protected from any immediate rise in mortgage repayments following the Bank Rate increase. Those customers who are due to come off their fixed rates later this year are, however, likely to face higher monthly repayments.
"Lenders are prepared to help anyone struggling with their mortgage payments. If you are worried about your finances, do get in touch with your lender early to discuss the options available. They have teams of experienced and understanding advisors who will develop a solution tailored to your individual circumstances. Making a call to your lender to discuss the options available will not impact your credit score.
"Importantly, the level of homeowners in arrears remains low, meaning that most households are able to keep up with their monthly payments."