Interest rates highest since April 2008 – property sector reacts

The Bank of England has implemented its 14th consecutive interest rate hike to address surging prices.

The UK’s interest rate now stands at 5.25%, up by 0.25% from the previous 5%.

The move marks the first time since April 2008 that the base rate has reached this level.

While lower than July’s dramatic rise .5% to 5%, the rise shows that price rises are now beginning to ease.

Effect on tenants as landlords with a buy to let mortgage

However, another interest rate rise could have a huge effect on tenants as landlords with a buy to let mortgage may look at increasing rents.

And mortgage holders will be facing much higher repayments when they come to remortgage.

Here’s a round-up of what property experts in the UK have to say:

Ben Beadle, the chief executive of the National Residential Landlords Association (NRLA), said: “Today’s rate rise will pile yet more pressure on to renters and landlords.

“The Bank of England has warned that the average increase in monthly repayments on buy-to-let mortgages by the end of 2025 will be around £275. This comes as some landlords have already seen their mortgage payments increase by almost 240% since December 2021.

“With landlord profits at their lowest level for 16 years, the vast majority are doing all they can to protect tenants from the impact of growing mortgage rates. However, without Government action, renters face a bleak future as growing costs lead to a loss of more rental homes from the market.

“Analysis for the NRLA has found that 735,000 rental properties could be lost across the UK if interest rates peaked at 5%. With an average of 20 requests to view each available home to rent already, today’s announcement will only worsen matters.

“The Government must urgently scrap tax changes which have dampened the supply of much-needed private rented accommodation. Likewise, it is also crucial that housing benefit rates are unfrozen so that vulnerable tenants receive assistance during this challenging period for the market.”

Matt Smith, Rightmove’s mortgage expert says: “After a rollercoaster few weeks, the market position today is actually largely similar to six weeks ago, in that today’s rate increase was much anticipated by lenders and has been largely factored in already to mortgage rates, meaning we expect mortgage rates to continue their slow downward trajectory over the next few weeks.

“June’s more positive inflation numbers have given the market renewed confidence that inflation will continue to fall, and the Base Rate won’t have to go as high as previously feared, meaning lenders can tentatively start to reduce rates.

“All eyes are now on July’s inflation figures in a couple of weeks – more positive news could accelerate rate drops, while any surprises would temper the current renewed market optimism.”

Giles Mackay, the founder of buying firm UPSTIX, said: “Much of the discussion around interest rates to date has focused on whether homeowners will be able to meet their mortgage payments, but the Bank of England’s latest 25bps rise puts a question mark over the sustainability of the country’s buy-to-let sector, which is particularly exposed.

“The popularity of interest-only mortgages among landlords means that 40% are likely to drop below a healthy interest coverage ratio by 2025 – which will require either raising rents at a time when tenants’ budgets are more strained than ever before or selling up and realising the historic gains in property values of recent years.”

Jonathan Samuels, the CEO of Octane Capital, said: “Whilst an unpopular opinion, it could be argued that the Bank of England hasn’t been daring enough in their decision to increase rates again today and really another 0.5% increase was needed in order to tame inflation.

“It’s far better to have a short period of pain brought about by higher interest rates, rather than a sustained period of significant economic turmoil and uncertainty.

“Take America, for example, where rates started to rise at a similar time to the UK, but in a far more aggressive manner. Inflation there is already back to 3% and so the target of 2% is within reach. If we had been as bold, then we too would be close to achieving the much heralded ‘soft landing’ and would be far closer to interest rates falling than we are now.”

Emily Williams, the director of research at Savills, said: “We don’t expect this decision to have a significant impact on the mortgage market. Lenders began to price in further rate rises from early June, and swap rates have been falling since early July, even in anticipation of today’s rate rise.

“But, affordability remains a concern for many, and is weighing on both prices and activity.

“The number of mortgage approvals in June was still at just 85% of its pre-covid average, according to the Bank of England. This was accompanied by a fall in the number of sales agreed to 87% of their pre-covid average in June from 97% in May, according to TwentyCI, and points to the continued need for vendors to price realistically.

“For the remainder of the year, we expect the market will be dominated by those who are less reliant on mortgage debt. Consequently, we expect the prime housing markets to outperform, seeing smaller price falls and a stronger recovery than their mainstream counterparts.”

Marc von Grundherr, a director of Benham and Reeves, said: “A fourteenth consecutive base rate hike will come as yet another nail in the coffin for the nation’s borrowers and will do little to boost a property market that has been treading water in recent months.

“We have seen some positive signs in recent weeks with mortgage approvals climbing. However, while this boost in market activity is good news, higher interest rates are likely to stifle the purchasing power of the nation’s buyers even more, resulting in the further stagnation of house prices.”

Richard Donnell, the executive director of research at Zoopla, said: “Although the base rate has increased further today, it’s not all doom and gloom for the housing market. There are signs that mortgage rates are peaking and 87% of mortgages are on fixed rates.

“For homeowners and would-be buyers who are impacted by mortgage rates, it’s important to note that the impact is not uniform across the UK.

“Higher mortgage rates hit harder in higher value markets in Southern England where a larger deposit and income are required to buy with a mortgage. In contrast, in the north of England and Scotland, house prices are still rising as the impact of higher mortgage rates is less pronounced.

“In certain areas in these regions, it’s also still cheaper to buy than rent at 5.5% mortgage rates.”

Matt Thompson, the head of sales at Chestertons, said: “We expect the rate rise to have a particular impact on homeowners with a variable mortgage as well as overleveraged buy to let investors whose increased mortgage payments could result in their investment making limited profit or a loss.

“Although there still is a vast number of buyers wanting to move as soon as possible, rising interest rates are forcing house hunters to be more cautious, review their financial situation and calculate a more conservative budget.

“Whilst this has recently resulted in fewer new buyers entering the market, we expect activity to pick up again once buyers have adjusted their criteria and lenders are bringing more products to the market again.”

James Forrester, the managing director of Barrows and Forrester, said: “The nation’s borrowers will be forgiven for feeling like they are trapped in some sort of Bank of England Groundhog Day, with rates increasing for the fourteenth consecutive time today.

“The base rate is now the highest seen in over fifteen years and so the latest generation of buyers will no doubt be panicked by the steep cost of borrowing they face in the current market.”

Mark Harris, the chief executive of mortgage broker SPF Private Clients, said: “After 14 rate rises in as many meetings, it’s time for the Bank to press the pause button.

“Give this latest rate rise time to take effect and see how the markets react before deciding whether to continue with these rate increases. Consecutive rate rises have been painful; it’s time to let them do their job, rather than causing continued anxiety and distress for borrowers.

“Those with a base-rate tracker will see their mortgage rate increase by 25 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a current pay rate of 4.5% will see their monthly payments rise from £1,390 to £1,425.

“The cumulation of 14 successive rate rises is significant. A borrower with a £250,000 mortgage on a tracker pegged at 1% over base rate will have seen their monthly payments rise from £943 in December 2021, when base rate rose from 0.1% to 0.25%, to £1,649 today.”

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