Interest rates have gone up again for the eighth time in less than a year.

Mortgage holders, house hunters and savers will be affected by the Bank of England’s decision to increase the rate from 1% to 1.25%.

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

Mortgage holders will see their annual costs increase, with tracker deals rising by about £40 per month for every £100,000 worth of mortgage.

Industry reaction: 

David Alexander the chief executive officer of DJ Alexander Scotland Ltd, said: “This substantial increase in base rates will undoubtedly have a serious impact on the housing market. We haven’t seen this scale of increase in decades and the effect on mortgage rates will be significant.”

“While I understand the need to control inflation there is a risk that introducing so many interest rate rises over such a short period of time has the potential to destabilise the housing market at a time when the pressures of utility bills, the rising cost of living, and the war in Ukraine have already made the markets wary.

“I think that the Bank needs to hold off from any further interest rate increases for a period of at least six months so that we can see the impact this latest rise has on inflation. What would not be helpful is if these interest rate rises result in the market grinding to a halt. We need prices to slow but not to stop altogether and I fear this large rise risks short-term damage to the housing market.”

Simon Gammon, MD, Knight Frank Finance said: “I would be surprised if we see a meaningful rise in mortgage rates in the coming days even with such a large rise in the base rate.

“Many fixed rate products sit somewhere between 5.5% and 6%, which is still high when you consider the base rate is at 3%. Mortgage rates have only just started adjusting following the mini-budget and that should have further to run.

“Swap rates – instruments used by lenders to price mortgages – have been trending downwards. If they continue to do so, we believe that some borrowers could still enjoy fixed rate products starting with a four in the weeks ahead.

“This will of course be dependent on the lenders and how they view the outlook, but we think there’s room for more easing in mortgage rates or at the very least a plateau.”

David Reed, operations director at Richmond estate agency Antony Roberts, commented: ‘First-time buyers, in particular, will be conscious of the impact a further rate rise on their mortgage payments. They may pause while they weigh up the feasibility of plans to buy before Christmas. They may even hold off until the Spring or Q2 and reassess the situation then.

‘A preference to continue renting instead of buying will further restrict the supply of rental accommodation coming to market at a time when availability is already acute in many areas.

‘The situation is very different for those buyers with a formal mortgage offer. For them, there is a rush to complete on a purchase before the bagged relatively attractive rate expires.’

Rightmove’s Tim Bannister said: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.

 “However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As today’s rise was expected, we don’t think we’ll see any significant changes to new fixed rate deals based solely on today’s interest rate rise.

“Mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments. 

“It’s important to look beyond the headline numbers, because, while “like-for-like” mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”

Brian Murphy, head of lending at Mortgage Advice Bureau, commented: “Another month brings another rise to the interest rate, with no end in sight as recession looms ever closer and the Bank of England continues its attempts to battle with the inflationary pressures bearing down on the UK economy. Those who have secured a new fixed rate deal in the last couple of months will be breathing a sigh of relief, but for anyone on a SVR or tracker mortgage this news could be a real source of concern. Expectations are that the industry will see an upwards trend of defaults on mortgage payments in the coming months, and so we urge anyone fearing that they may struggle with mortgage payments to go straight to their mortgage provider for guidance.

“For prospective homeowners, it’s a hostile environment to be buying in, but equally it seems doubtful that market conditions will become any friendlier in the near future – speaking to a whole of market adviser is, as always, the best course of action.

“In this enduring period of rising interest rates and inflation, homeowners should prioritise future-proofing their mortgage and property ownership plans. Advisers have now helped clients through eight months of consecutive rate rises, and although the situation is far from ideal, at least it puts them in the best possible position to offer advice to clients that will stand the test of time. However, the onus to help shouldn’t exclusively fall on mortgage providers – as the Autumn statement approaches, it shall be interesting to see what if any forms of support will be introduced by the government.”

Marcus Dixon, director of UK residential research at JLL, said: “A further rise in the base rate, while uncomfortable for those not locked into fixed rates, was not unexpected. With it being more a question of when rather than if rates would rise. This will of course impact the housing market, albeit this increase was likely already priced into new fixed rates deals and market forecasts. The MPC announcement does not change our outlook.

“JLL are forecasting that higher interest rates, combined with the winding down of the Help to Buy scheme, will mean we see a 30% fall in transactions in 2023 compared with 2022, around 300,000 fewer sales nationally. JLL are forecasting prices will fall too, by 6% UK wide in 2023, following a strong performance this year. But not all areas will perform in the same way.  Markets less burdened by debt, with a higher proportion of cash purchasers, are expected to be better insulated, central London for example is forecast to see a 2.5% increase in prices next year.”

Stuart Law, CEO of the Assetz Group, said: “We have been talking about the end of the buy to let era for some time, but today’s interest rate rise really does signal its final death knell, both as a viable sector for investors, or as a model that makes a useful contribution to our national housing mix.

“Even the most committed landlords will now be wondering how they will be able to fund their investments as buy to let mortgage costs soar on top of recent tax rises aimed at landlords. Other options do exist for keen property investors that work much better in the context of the current market conditions and policy environment. For example, investing in a portfolio of loans to housing developers means investors can receive typically 6% -9% gross yields as monthly loan interest, rather than pay a higher interest rate to a bank than the rental income for a buy to let mortgage. And this investment has significant social impact, allowing more homes to be built for sale and rent at a time when we are facing a deepening national housing crisis.

“We must build more homes. It is the only way to tackle affordability and undersupply in the rental and for sale markets. Finding new ways for private investors to successfully inject capital into the market is vital at a time when we look set for massive cuts in public spending. But we can’t ignore the other crucial aspect of this which is supply side reform. That means unrooting the planning system to promote more development. However, once again whether this can be delivered by government is in doubt as we all await the autumn statement on Nov 17, with rumours swirling that the planning reforms promised by the last Prime Minister will be scrapped.”