The Bank of England’s decision to lift rates for the 12th time in a row comes after figures showed the cost of living increasing by more than expected.
Inflation stood at 10.1% in March, down from 10.4% in the year to February, despite predictions it would fall further.
The latest rate hike makes the cost of paying back mortgages, other loans and credit cards more expensive but should mean people get a better return on your savings.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “This latest increase in rates comes as no surprise and for that reason, the impact on the housing market is likely to be relatively modest.
“Activity has certainly improved since the beginning of the year although buyers remain cautious about taking on debt.
“Nevertheless, there are many buyers who sense there is an opportunity to take advantage of stabilising, and even softening in some cases, prices.
“Most buyers are telling us they need to see value if they are going to commit and we have noticed many more viewings before offers are forthcoming for those reasons. Realistic sellers are recognising that the differential between selling and buying is what they should be concentrating on, rather than headline prices.”
Nick Leeming, chairman of Jackson-Stops, commented: “While the outlook for household finances remains sombre, persistently high inflation has led the Bank of England to increase the base rate once again. Although only incremental, the decision continues to move the dial in the favour of savers not borrowers.
“Adding further grit in the gears for first-time buyers, this news will also be disappointing for anyone needing to remortgage.
“The industry expectation is that the next few months could draw a line in the sand for further rate rises, to ensure the cost of debt does not create more problems than it is attempting to alleviate. Inflation should start to begin its descent into single figures later this year.
“For house prices, the picture remains a varied one by region and by price point. House price growth on a national scale may be levelling out somewhat, but in coastal locations with period properties and prime, central, locations the continually strong demand is fuelling demand.
“Changing working patterns with workers spending more than 50% of the working week in the office on average has made the appeal of commuter towns rise once again. Buyers will be keen to strike the balance between commutable convenience and greater space, but compromises will have to be made in order to clinch a purchase. Cash buyers are fortunate as they are less susceptible to a changeable mortgage market, often making themselves the preferred candidate in a competitive property race.”
Dominic Agace, chief executive of Winkworth, said: “With a relative period of stability for mortgage rates, the property market has returned to a pre-pandemic level. A hot rental market and acceptance of a new norm of the cost of finance is motivating needs-based movers, as wage inflation at 7% and house price corrections of 3% improve affordability in real terms.
“That said, another interest rate increase and a month of bank holidays at a key selling period of the year will undoubtedly impact the level of transactions. The introduction of 100% mortgages helping renters buy where they can afford rents higher than potential mortgage payments will support the demand for flats and for first time buyer activity.”
Rightmove’s Matt Smith said: “Over the last couple of weeks, average fixed-rate mortgages have been slowly edging up in anticipation of today’s rise of 0.25% in the Bank of England Base Rate. There is unlikely to be any immediate changes in lender rates based on today’s decision, and lenders are instead likely to wait to see what the impact of the Bank’s comments on the outlook of the economy have on swap rates. An average five-year fixed 85% Loan-To-Value mortgage rate is now 4.52%, up from 4.44% last week.
“To put this into context, this amounts to a difference of £14 a month for someone purchasing an average property and spreading the cost over 25 years. So, while we may continue to see fixed-deals fluctuate slightly up or down in the short-term, buyers coming to market soon may find that the amount they need to repay each month doesn’t change significantly.
“Those on a tracker mortgage will be more disappointed with today’s news, as they may have thought that the Base Rate had peaked in March given some of the positive signs for the wider economy, and this is another cost they will need to factor into their monthly budget when the full rate rise is passed on.
“Buyer demand is now higher than pre-pandemic levels, most notably in the typical first-time buyer sector, so it is likely we will see lenders try to remain competitive to meet this demand. We’re also starting to see creative ways some lenders are trying to help segments of the market get onto the ladder with the launch of Skipton Building Society’s 100% mortgage product. While it is clearly designed to target a very specific segment of the first-time buyer market, given the affordability challenges many first-time buyers face, short-term innovations such as this are welcome to try and help more would-be first-time buyers own a home.”
Nathan Emerson, chief executive for Propertymark, said: “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.
“It is imperative that the UK Government urgently do more to support homebuyers and landlords with their rising costs, especially as interest rates look to remain high into the start of next year.”
Frances McDonald, director of residential research at Savills, commented: “Swap rates [the rate that most lenders use to price their products] appear to be more settled, having fallen marginally during the past few weeks despite this further rate rise being widely telegraphed, suggesting lenders are less likely to increase the rates on their fixed rate products.
“This is further evidenced by a continued decline in average quoted mortgage rates, despite March’s Bank base rate rise, with the average quoted two-year fixed rate on a 75% LTV falling from 4.82% in February to 4.53% in April.
“More broadly for the UK housing market, against a backdrop of fewer price reductions, activity levels fell back slightly in April after recovering to just above their pre-Covid levels during March, according to data from TwentyCi. This points to continued price sensitivity in the market and the need for vendors to price realistically.”
Tom Bill, head of UK residential research at Knight Frank, said: “The latest rate rise won’t have a huge impact on the housing market but sentiment will be dented if the peak starts to feel further away. For now, after the mini-Budget threw a bucket of cold water over the property market, activity has become lukewarm.
“House price growth is largely flat, sales volumes hit their low-point in January and the economic backdrop is gradually improving. We expect prices may fall by a few percent this year as higher mortgage rates erode demand but activity will be supported by a strong jobs market, record levels of housing equity and lockdown savings.
“As the general election moves onto the radar over the next 12 months, it may be that political uncertainty curbs demand even as the bank rate and inflation move past their peak.”
Marcus Dixon, director of UK residential research at JLL, commented: “In the absence of more positive news on UK inflation most had resigned themselves to a further rate rise from the MPC. This time to 4.5%. Higher borrowing costs will of course impact both new and existing homeowners coming off fixed rates, but banks had already anticipated rates would rise meaning much of this is already priced into fixed rate deals. Indeed, the housing market remains more resilient than many had anticipated.
“The latest results from the RICS Survey show market conditions remain challenging, with agents still expecting prices to fall in the coming months in response to higher borrowing costs and uncertain market sentiment. But the outlook for the next 12 months remains more positive.
“Over the longer term there is a clear commitment from both Labour and the Conservatives to support home ownership. But until we see rates top out, we expect the market to continue to tread water. This means lower levels of activity but prices will, we expect, remain more resilient as a lack of distress and high levels of equity act as a buffer to more challenging economic conditions.”
Adrian Anderson, a director at Anderson Harris, commented: “The never-ending story of interest rate rises continues today with the Bank of England’s decision to set rates at 4.5%, resulting in yet another blow to borrowers.”
“Stubbornly high inflation has seen interest rates continue to soar for well over a year and the landscape has changed once again since the last MPC meeting in March, offering a bleaker outlook for inflation as banks raise mortgage rates and tighten their lending criteria meaning many cannot borrow as much as they could this time last year.
“After 14 years of historically low mortgage rates, today’s announcement is more bad news for many existing homeowners. The cost-of-living crisis coupled with the prospect of higher mortgage payments has prompted an increase from clients looking to move to interest-only mortgages in an attempt to soften the blow.
“What next? Who knows, and that is part of the problem. Uncertainty could stall the housing market. High interest rates, and in turn, high mortgage rates, seem to be hanging around for longer than maybe many expected and with 1.4 million households on fixed-rate deals ending this year, concerns over an increase in payment defaults in the future is very real.”
Guy Harrington, CEO of Glenhawk, commented: “The BOE may argue it is being forced into a corner, but this has to be the end of the rate hikes. As a tool for bringing down inflation, it’s clear the current approach is failing, so other solutions need to be found. The mortgage market is creaking under the strain, and distress is starting to show. It may already be too late to prevent an unprecedentedly painful winter for UK homeowners.”
Paula Higgins, CEO of HomeOwners Alliance, said: “For new mortgage hunters, this latest increase is unlikely to see mortgage rates shoot up any time soon as a result. The market remains competitive and we’re seeing new products coming to the market, not least Skipton’s 100% mortgage – another indicator that lenders are feeling confident.
But those coming off a cheap fixed-rate mortgage may be in for a shock; fixed mortgage rates average 5.28% for two-year deals and 5% for five-year deals.
“A major side-effect of these continual rate rises – now the twelfth in a row – is that a lot of homeowners will just assume staying put on their current deal must be better than paying 5%. But if you’re on your lender’s standard variable rate, you could be paying significantly higher rates than this. In many cases standard variable rates are already around 8%, even before this latest increase.”