The Bank of England has announced it is raising interest rates to what is the highest rate since the recession in 2008. After nine members of the Monetary Policy Committee voted by a majority of 7-2 on November 3, the base rate will now jump from what was 2.25 percent to 3 percent.
The 0.75 percent increase is the biggest interest rate rise since since 1989 and is also the eighth consecutive time that the Bank has hiked interest rates, with the base rate just 0.1% less than a year. The all-important decision was made by the Bank in a bid to control inflation amid the crippling cost of living crisis.
Millions of homeowners across the UK are now thought to be affected as mortgages rates could spike in line with the interest rate rise. The 0.75% increase is expected to raise monthly mortgage repayments for those who are on variable rates mortgage deals and other forms of borrowing.
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Mortgage rates soared in September after the mini-budget was delivered by former Chancellor, Kwasi Kwarteng, while former Prime Minister Liz Truss was in power. After this many lenders began pulling their mortgage products from the market as they needed time to reprice them.
It is now thought that the latest interest rate rise will create panic and anxiety throughout the property market once again.
Jonathan Samuels, CEO of Octane Capital, said: “While the mortgage market has settled in recent weeks, today’s latest base rate hike will certainly sow more seeds of panic amongst the nation’s homebuyers and who can blame them after witnessing the largest single increase since 1989.
"The average homebuyer opting for a variable rate mortgage can expect to see the cost of their monthly repayment increase by around £166 per month as a result of today’s increase.
"Those currently coming to the end of a three year fixed mortgage will also see an increase as they look to secure another fixed term, with their monthly repayment increasing by an estimated £257 per month, despite having cleared a substantial chunk from their original loan.”
Bradley Post, CEO of RIFT Tax Refunds, added: "Today’s decision will only add to the existing anxiety caused by the current cost of living crisis that has engulfed many households in recent months.
"As a result, those who are already stretched financially thin are now facing a further squeeze on their monthly earnings, as the cost of everything from our mortgage repayments, overdrafts loans and credit cards is set to climb.
"Unfortunately, there isn’t a great deal that can be done to ease these increased costs, other than tightening our belts where our borrowing habits are concerned.
Of course, for the vast majority, the belt simply can’t get any tighter, whilst many more have no other choice but to utilise overdrafts and credit cards simply to get by from one month to the next.”
It is also understandable that first-time buyers will be amongst those worried that they can no longer afford to buy.
Iain Crawford, CEO of Alliance Fund, explained: " The mere three per cent base rate will be unheard of for many homeowners who have only known interest rates to sit below one per cent until very recently.
"So they can be forgiven for feeling a tad dizzy at the prospect of what their mortgage is now likely to cost them, with the Bank of England not only implementing the largest single increase in over 33 years, but also pushing the base rate to its highest since November 2008.
"Such a hike will also stun those who were currently in a position to buy, but are now likely to find that the cost of borrowing is no longer as affordable as it was. This will not only dampen their enthusiasm within the sales market in terms of the price they are willing to pay for a property, but it’s likely to keep many exiled within the rental sector for quite some time more.
So while the housing market may be in for a very rough ride over the coming months, it’s a safe bet that the rental market will be thriving.”
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