BoE raises base rate – the property industry reacts

The Bank of England’s decision to increase base interest rates from 4.25% to 4.5% today has led to the property industry reacting.

This is the twelfth consecutive interest rate rise – and the highest the rate has been in nearly 15 years.

The rise will see loan and mortgage costs increasing for many – though savers will earn more.

Raise rates in a bid to lower inflation

The Bank made the move to raise rates in a bid to lower inflation which has been high due to soaring energy costs, and which has impacted on the cost of living.

In some good news for landlords and tenants, the Bank’s Governor, Andrew Bailey, said he is no longer expecting the UK to go into recession.

And he is predicting that average energy prices will drop to £2,100 by the end of 2023.

Here, we look at some of the property industry’s reaction to the Bank of England’s interest rate rise.

Landlords in the BTL market could exit

There are issues for landlords on tracker mortgages with the base rate rise, Nathan Emerson, the chief executive of Propertymark says: “For those on fixed rate mortgages, this latest increase is likely to have no immediate effect, and for those looking for a new fixed rate, they should also see little change in the market offering due to it being already factored into banks’ pricing.

“However, for those on tracker mortgages, like many landlords in the buy-to-let market, this means another rise in outgoings.

“In the rental sector, a rise in the cost of supplying a home will put further pressure on rents and may see some investors forced to exit the market altogether, further worsening the extreme supply and demand imbalance seen already.”

BTL borrowers will face higher rates and affordability testing

Angus Stewart, the chief executive of Property Master, says BTL borrowers will face higher rates and affordability testing and he said: “This continued increase in base rate will reflect in higher interest rates for those BTL borrowers on tracker or discounted rate products or who remain on the lenders’ SVR.

“If you’re on the SVR and not planning on selling your property in the near future it might be worth looking at fixed or tracker products to mitigate the increased mortgage cost.”

He added: “We continue to see increasing competition between lenders and the margin between fixed and variable rate products has reduced considerably in the past few months.

“The key challenge for many landlords is meeting the affordability requirements for a new mortgage especially in areas, such as London and the South East, where rental yields are lower.”

Rates could go up further

Kimberley Gates, the head of corporate partnerships at Sirius Property Finance, said that rates could go up further and this rate will impact on everyone’s wallet.

She explains: “A twelfth consecutive interest rate hike will come as a blow to the nation’s homebuyers who will now see the cost of securing a mortgage climb that little bit higher at a time when they are already struggling with the wider cost of living.

“We expect that interest rates will continue to rise before they fall, with the general consensus being that they will peak at 5% and so it looks set to get that little bit bleaker, before it gets any better.”

Government could do more to help

But the government could do more to help, says James Forrester, the managing Director of Barrows and Forrester.

He said: “It’s clear that the Bank of England’s aggressive approach to managing the economy via a string of interest rates simply isn’t working and it’s the time the government stepped in to make Britain grow again.

“A twelfth consecutive increase will do little to stimulate the property market, with buyers left with little choice but to offer less due to the squeeze on affordability.

“If sellers wish to sell, they also have little choice but to accept the current reality of what their home will fetch in the market.”

Urging borrowers not to panic

Ross Boyd, Dashly’s chief executive is urging borrowers not to panic, and he said: “Inflation is stubborn so it’s no surprise that the MPC has been left with no other option than to increase the interest rate rise in a bid to get this to come down again. But knee-jerk reactors should not panic. Lenders have been building these increases into their rates for months now and it’s unlikely that these will go up again.

“What we’re seeing instead is more innovation coming through. We’ve already seen Skipton bringing 100% LTV mortgage, Natwest and Virgin both announced deals which allow the borrower to switch to a better deal.”

Further rises on the horizon

Stuart Collar-Brown, a director and co-founder of My Auction, believes there could be further rises on the horizon and he says: “There is nothing surprising about today’s interest rate announcement and it doesn’t look like we’ve seen the last of this yet.

“Inflation remains stagnant and with interest rate rises the only tool in the Bank of England’s armoury, they will be left with little choice other than to keep increasing the base rate until inflation starts to nudge down again.”

‘A nightmare for people with mortgages’

Sarah Coles, the head of personal finance at Hargreaves Lansdown, points to interest rates benefiting savers, and she says: “The 12th consecutive hike takes us to the kinds of levels we haven’t seen since the heady days of 2008. Rates rises are generally considered a bonanza for savers and those buying an annuity and a nightmare for people with mortgages, but it’s not always so clear cut.”

She adds: “For anyone on a variable rate mortgage, there’s no let-up. After 12 consecutive months of rises, if you’ve been on one of these deals for a while, you’ll really be feeling the pain.

“If you were on a £200,000 tracker mortgage over 25 years at 5%, and all of this rise was passed on, a 0.25% hike could cost an additional £29 a month.”

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