Housing industry reacts to latest Bank of England interest rate hike

Interest rates have gone up again for the seventh time in just a matter of months.

Mortgage holders, house hunters and savers will be affected by the Bank of England’s decision to increase the rate from 1.75% to 2.25%.

Homeowners on Standard Variable Rates or tracker mortgages will be hit particularly hard in the short-term by the latest interest rate increase.

Industry reaction:

Nick Whitten, head of UK Residential and Living research at JLL, commented: “Of course, in the longer term the intention of this rate rise is to curb inflation, but in the short-term households are facing significant increases in the cost of living driven by food and fuel alongside wage rises which in many cases are not keeping pace with household expenditure.

“While some households will be deterred from moving due to higher rates, others will be keen to lock in at current [albeit higher] rates rather than risk further rate rises in the months to come. In the longer-term higher interest rates will of course be a barrier to some households. This combined with the end of Help to Buy will undoubtedly impact on first time buyer’s ability to enter the market.

“With higher borrowing costs, relentless rises in the cost of living and recent house price appreciation all acting as barriers. Conversely, we expect existing owner occupiers, particularly those buying with cash will increase as a proportion of sales.”


Dominic Agace, chief executive of Winkworth, said: “With so much noise around the trajectory and uncertainty in the interest rate and inflation balance going forward, it’s important to reflect that these are still historic lows, with interest rates at 5.75% as recently as 2007.

“Undoubtedly, each rise takes some zest out of the market, albeit there is some room to go before any danger of a reversal in market trends. What the big question this time is, what will the end balance be now Trussonomics has entered the equation, with a proposed stamp duty cut.

“We must ensure there is a balance between home economics and Trussonomics. What we do know is there is a desire to move home and what seemed a negative outlook for 2023 is becoming more benign for the housing market.”


Nicky Stevenson, MD of Fine & Country, said: “The Bank of England and the government don’t appear to be singing from the same hymn sheet.

“Rate-setters are taking money out of people’s pockets in an effort to cool the economy, while at the same time Liz Truss and her team are signposting their intention to radically overhaul the tax system in an effort to boost growth.

“While many forecasters are trimming their expectations for future house price gains following a series of interest rate hikes, the effects of this monetary tightening could well be mitigated by the cuts to stamp duty expected to be announced as part of the mini-budget.

“Against this backdrop, we expect the debate over the Bank’s independence to intensify in the weeks ahead.”


Nick Leeming, Chairman of Jackson-Stops, commented: “It seems the world never sleeps when it comes to property. In the week that Lee Rowley has been announced as the new Housing Minister and a Stamp Duty tax reform seems to be at the top of the Chancellor’s agenda for today’s mini-Budget, the Bank of England has raised interest rates to 2.25%.

“Our current era of historic low rates set an inevitable path for indices to predict an upward spiral in rates to tame the market, so many saw and planned for this impending increase. Longer term fixed mortgage deals remain available, with many buyers keen to get on with their move after years of instability caused by the pandemic.

“Inevitably, those who aren’t yet on the ladder and who don’t have a capital asset to benefit from are always hardest hit by such announcements, and it may cause those at the lower end of the market to revaluate their budgets. This shift in monetary policy is also adding a sense of urgency to current transactions, as mortgage providers cope with a backlog of applications, but its effect on property values won’t be fully reflected in the price indices for several months to come.”


Rightmove’s Tim Bannister said: “Although the majority of people are on fixed rate mortgages, there’s a looming concern for those with their terms due to end over the next six months or so as interest rates continue to creep up.

“It’s likely that those who choose to fix again will find that rates have doubled in some cases since they last locked in, and so despite paying down some of their debt they could find their new monthly mortgage payments are higher, even if they’ve moved into a lower LTV bracket and have built up equity. They will now face the tough decision of moving to a tracker mortgage in the hope that interest rates drop again soon, or taking another fixed deal for a bit more certainty on their outgoings.”


Jason Tebb, CEO of OnTheMarket, said: “This 50 basis points rise, taking rates to 2.25%, was widely expected by the money markets given high inflation, with some predicting an even more aggressive 75 basis points hike. While it’s the seventh rate rise in as many meetings, we still don’t expect it to cancel out positive buyer and seller sentiment in the housing market.

“As stock levels hit a 15-month high in August, we’re inevitably moving towards a rebalancing in terms of supply and demand. Yet this will take time and until then, the ‘new normal’, an elevated version of the pre-pandemic market, continues.

“As long as buyers remain confident about obtaining the mortgages they need and being able to afford them, increases in rates, while unwelcome, are unlikely to result in a slamming on of the brakes. Even with this half-point rise, it is still a comparatively cheap time to borrow money but if we continue to see successive rate increases, the picture could be very different.”


Lucian Cook, head of residential research at Savills, commented: “The seventh consecutive base rate rise takes us to 2.25%, the highest since 2014. While this is lower than some had speculated, clearly nobody is ruling out the prospect of further rate rises and rates are expected to remain high – in the context of the recent past, at least – over 2023.

“These rate rises have been pretty well-signposted and that has given an added sense of urgency to certain parts of the market over recent months, as buyers looked to beat further increases.

“For existing borrowers, most have locked into fixed-rate mortgages, meaning there will be no immediate impact. And numbers opting for fixed rates have risen dramatically in the past five years meaning the market is more insulated than in the early 1990s or 2007, for example.

“But for those on a variable rate mortgage or coming to the end of a fixed rate it will mean an increase in mortgage costs. However, these homeowners are likely to have had their mortgage affordability stress tested at the outset, so while the rate rise will undoubtedly be uncomfortable and put pressure on household finances, it should not be unmanageable.

“For those new buyers not already locked into a mortgage offer, there will be a more immediate increase in costs. The average buyer taking on a £280,000 mortgage to buy a home worth £330,000 will pay an extra £65 per month or £780 per year. The cumulative effect of the rate rises in 2022 means the average monthly mortgage bill has risen since the beginning of the year by £349 to £1,150.”

“While this will bring an added sense of caution to the market and reduce mortgage affordability, the relaxation of mortgage regulations we saw in August means fewer limits in terms of what buyers can borrow. We’d expect that to lead to a softening of demand after two bumper years, and a reduction in budgets, leading to lower levels of transactions and a softening of prices, particularly in the heavily mortgage-dependent parts of the market.

“However, there will be a distinction between those more or less dependent on borrowing, with greater segmentation between different price bands. The most recent survey of over 1,000 people registered with Savills, suggested that the majority of prime market buyers had not adjusted their budgets. Almost a third [29%] of buyers said they had reduced what they planned to spend.”


Homebuyers hit as mortgage costs continue to climb



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One Comment

  1. Richard Moseley

    God help us all if the Bank Of England independence is even questioned, let alone taken away!
    If that happens the markets will destroy the value of the pound (even more than it has already) and sink the gilt market causing interest rates to soar further leading to crisis not seen since the Conservative government tried to keep pound within the old ERM mechanism.
    As mentioned by the MD of Fine and Country we now have govt policy in direct contradiction with the Bank of England mandate to control inflation. I acknowledge that the govt cap on energy bills will bring inflation down versus previous projections, however the budget announced yesterday will be perceived by the global investment community as fiscal recklessness. They will sell off UK bonds (yesterday is just the beginning) pushing rates further higher.
    The ratings agencies will downgrade UK debt which will further worsen the interest rate situation.
    The government yesterday just signed off on the death knell for the UK property market, the UK economy and have gifted Labour the next General election.


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