Property industry reacts to fifth consecutive interest rate increase

Grianne Gilmore
Grianne Gilmore

Interest rates have gone up again for the fifth 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% 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.

Industry reaction: 

Grianne Gilmore, head of research at Zoopla, said: “This rise in rates will translate into higher mortgage costs for those looking to buy a home. For buyers with a 30% deposit buying an average priced home of £250,00 in the UK, a quarter point rise in mortgage rates this will add hundreds [£264] to their annual mortgage bill. Most homeowners will be protected from the current raft of interest rate rises as three quarters of those with outstanding mortgages are on fixed-rate deals.

“Even with five base rates since December last year, buyer demand in the housing market has remained strong all through the start of this year, and is still 50% above the five-year average – so those looking to sell should consider making a move while demand is at this level. With further interest rate rises on the cards in the coming months, and a cloudier economic outlook, buyer demand will ease through the rest of 2022.”


Lawrence Bowles, director of research at Savills, said: “Further increases to interest rates, combined with the strong price growth experienced over the past two years and the cost of living squeeze, will combine to limit the capacity for growth over the next few years. But rates are still low in a historical context, so it remains difficult to see the trigger for a meaningful house price correction. Mortgage rules in place since 2014 mean that buyers have had to show they can afford their repayments at interest rates 3% higher than expected, which means they are likely to be able to weather these increases in the base rate.

“These changes are less likely to have an impact in the prime residential markets. Most buyers in these markets are less reliant on mortgage finance when buying a home. Given the recent negative performance in equities markets, we may see a flight towards safe haven assets such as housing.

“Savills latest market forecast projects that price growth in the next four years (2023-2026) will average a total of 5.1% across the UK as a whole. This may be of some relief to many would-be buyers, many of whom will feel they have been chasing the market over the past two years.

“However, it’s clear that the Bank of England intends to act forcefully in the face of further persistent inflationary pressure, which could reduce capacity for price growth in markets where borrowing is already high relative to incomes.”


Iain McKenzie, CEO of The Guild of Property Professionals, said: “Hot on the heels of the US Federal Reserve, and its greatest rise in almost 30 years, the Bank of England has today prioritised curbing inflation by raising interest rates by 0.25%.

“Getting inflation under control will aim to improve the cost of living and help people to keep up with their mortgage and rent payments.

“Homeowners are facing increases at all angles and many will still be worried about the effects that a fifth straight hike could have on their mortgages.

“People on tracker mortgages or with a variable rate could see their repayments increase again which will be unwelcome at a time when everything from energy and fuel to food and drink is going up in price.

“Homeowners on fixed-rate mortgages are currently in the safest position, as this interest rate rise won’t affect them for the time being. It is important to keep track of when your fixed rate is up for renewal and be ready to secure a new deal.

“Our research indicates that around 1.5 million fixed-rate mortgages will end this year and next, so these interest rate rises will soon affect you when the time comes to renew.

“Homeowners should sleep soundly though that the value of their property is still very robust. The increasing demand to buy which we have seen in the last two years will continue to ensure that any short-term issues in the economy won’t cause your home to lose value.”


Richard Davies, MD at Chestertons, stated: “Anyone who has been following the news would have been likely to have expected the Bank of England’s decision to increase the bank rate. In anticipation, many house hunters were rushing to seal a deal on their property purchase last month and lock in a more favourable fixed rate. According to the Bank of England, 81% of outstanding mortgage loans are now on a fixed rate with an average rate of 2.06%.”

“We expect the new rate rise to impact particularly on new home owners whose mortgage loan to value is above 75%, those on a variable rate as well as property buyers in London, where the average mortgage value has surpassed £392,000. If we take that average and consider the recent rate increase, London homeowners could be facing an annual increase in mortgage payments of almost £600. A big addition to the already rising cost of living.”


Jason Tebb, CEO of OnTheMarket, commented: “This latest rate rise was factored in by the money markets, given continued high inflation, but we don’t expect it to quash the remarkable buyer and seller sentiment in the housing market.

Even with another quarter-point rise, interest rates remain relatively low. We are gradually moving towards a more rebalanced market in terms of supply and demand, with evidence emerging of a rise in the number of new instructions. Yet this will take time and until then, the ‘new normal’, an elevated version of the pre-pandemic market continues. Regional differences are also a consideration, with ‘one size does not fit all’.

As long as buyers remain confident about obtaining the mortgages they need and being able to afford them, modest increments in rates, while unwelcome, are unlikely to result in a slamming on of the brakes. It remains the case that many buyers simply need to move.”


Dominic Agace, chief executive of Winkworth, remarked: “We are beginning to see a divergence in the impact of the cost of living and interest rates and their impact in the property market. Country markets, where there have been rapid price increases since the pandemic, are now cooling in terms of demand. Although demand is easing in London where prices have remained fairly static, it still remains ahead of 2021.

“We expect the interest rate increase and wider economic concern to impact on demand, but expect London markets to outperform this trend, remaining positive through the autumn market.  In both cases, there is sufficient underlying demand, headroom in interest rates and a strong enough labour market to allow several more rises before there will be concerns about price corrections.  So far, we are seeing an easing rather than seeing a cause for concern. We would expect the slow trajectory of interest rates with five year mortgages cheaper than two year fixes to lead us this way.”


Bank of England expected to hike interest rates but will it cause house prices to fall?



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