BoE base rate rise – property experts respond

News that the Bank of England has pushed up the base interest rate by 50 basis points to a 14-year high of 3.5% has left many property experts wondering whether property buyers will get more help and whether another rise will be forthcoming.

This is the ninth rise in a year as the bank bids to tackle rocketing prices and inflation – the interest rate was increased last month from 2.25% to 3%.

Lawrence Bowles, the director of research at Savills, said: “While rates today are the highest they have been for more than a decade, they have risen by less than markets or economists were predicting earlier in the year.

‘Likely to see a slowdown in transaction activity’

“However, debt costs are still far higher than they were twelve months ago. This means we’re likely to see a slowdown in transaction activity from mortgaged buyers over the next few months, with cash buyers gaining a relative advantage.

“With the pace of interest rate hikes slowing and the possibility of rate cuts on the horizon, the picture looks like it will improve for mortgaged buyers in 2024 and beyond.”

He adds that Savills is forecasting that house prices will begin to recover next year and that the average house price will rise by a net figure of +6% in nominal terms over the next five years.

‘This rise was largely expected’

Rightmove’s property expert Tim Bannister said: “It’s important to remember that this rise was largely expected by the markets and so will already have been factored into many mortgage lenders’ fixed rates.

“So, the good news is we don’t expect this rise in the base rate to translate directly into increases in current fixed mortgage interest rates.”

He added: “In late September we saw a rapid increase in mortgage interest rates beyond the base rate trajectory, so the indications are that the direction of travel of fixed-rate mortgage deals will be downward next year.

“The rise in the base rate will affect those on a tracker mortgage, though average tracker rates are currently lower than fixed-rate deals.”

‘3.5% may not be the peak for the base rate’

Mark Harris, the chief executive of mortgage broker SPF Private Clients, said: “While 3.5% may not be the peak for the base rate, we don’t believe it needs to, or can go, much higher.

“Fixed rates are influenced by future base rate movements and therefore not directly linked to what is decided this week.

“Indeed, the pricing of fixed-rate mortgages, which soared after the mini-Budget, continues to drift slowly down, with five-year fixes breaching the 4.5% barrier this week and expected to drop below 4% in the new year. Come 2023, we could see five-year fixes priced below base rate.”

‘Impact on confidence to buy property’

Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said: “Such a substantial increase in base rate is alarming, particularly for its impact on confidence to buy property, which can compromise activity in the housing market.

“However, this rise has been expected for some time, with lenders already factoring it into pricing of fixed-rate mortgages.

“Indeed, brokers tell us that they don’t expect these to go any higher; if anything, they are likely to stay the same or continue falling slowly.”

‘Borrowers will feel that rate rises are coming thick and fast’

Tomer Aboody, the director of property lender MT Finance, said: “Although borrowers will feel that rate rises are coming thick and fast, hopefully this will succeed in getting double-digit inflation under control quicker.

“The Prime Minister and his team will then need to come up with some stimulus to turn up the economy and ensure the hurt isn’t long term.”

He added: “As rates rise and the cost-of-living increases, the negative impact on the housing market is inevitable.

“Given the importance of the housing market to the wider economy, the government needs to provide some form of assistance to stimulate the market. This could take the form of a restructure of stamp duty or some form of mortgage interest tax relief to alleviate some of the many stresses that borrowers will face in coming months.”‘

‘Another agonising squeeze for hard-pressed borrowers’

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “It’s yet another agonising squeeze for hard-pressed borrowers.

“The Bank of England has ratcheted up the pressure with another 0.5 percentage point hike.

“It’s going to come as a horrible blow for borrowers who got used to rock bottom rates and haven’t seen anything like this for 14 years.

“To make matters worse, higher mortgage payments will come on top of all the other soaring costs – from food to fuel – and we have even more hikes looming on the horizon, with energy bills rising again in April. It raises the question of how much more squeezing we can take before we’re finally crushed.”

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