The Bank of England has bumped up the interest rates for the fourth time in just a matter of months. The announcement comes in the midst of an increasingly challenging financial climate of soaring inflation and the general cost of living.
For mortgage holders, house hunters and savers, this recent hike in interest rates will come as a “bitter blow” as its going to dampen the prospects of first-time buyers, while existing homeowners will feel further pressure on their already stretched monthly budgets.
Amanda Aumonier, Head of Mortgage Operations at online mortgage broker Trussle, said for many homeowners, this increase “will be the straw that breaks the camel’s back”.
“Homeowners are under incredible financial pressure and this interest rate rise will only add further fuel to the fire in the short term, while first-time buyers will struggle to fulfil their homeownership dream.”
How will it affect homeowners with an existing mortgage?
Bank of England rate rise will not be welcomed by borrowers on variable rate mortgages as the cost of their mortgage will increase, but the ones on fixed-rate mortgages are safe for now.
Martijn van der Heijden, CFO at broker Habito, said: “For the quarter of UK homeowners who are on a variable, tracker, or standard variable rate, this raise will see their repayments go up; on tracker mortgages the change will be immediate and certain, but on a variable rate, it’s up to the lender."
The good news, however, is almost 75% of UK homeowners are on a fixed rate deal and will remain largely unaffected.
Adrian Anderson, Director of property finance specialists, Anderson Harris, said: “Those on fixed-rate will not be affected today, however, the fixed rates available in the future will likely be more expensive hence anybody with a fixed rate which is ending shortly should shop around as soon as possible.
Iain McKenzie, CEO of The Guild of Property Professionals, said: “People on fixed-rate mortgages should keep an eye on when their deal is set to renew and make preparations in advance.
“With the demand for properties holding strong across the country, the housing market is likely to ride out any short-term issues in the economy. Homeowners can be reassured that their property will continue to hold value.”
How it will affect first-time buyers and enthusiasts?
Many experts believe that the most vulnerable to rising borrowing costs are new entrants to the market rather than existing homeowners.
Hit hard from all sides - rising rents, higher interest rates and more stringent lending criteria - first-time buyers are going to struggle the most.
Vadim Toader, CEO & Co-Founder, Proportunity, said: “The hike is a further blow to first-time buyers trying to get onto the housing ladder. Many who have been saving for years are now facing further delays to being able to afford to move, as more mortgages will be out of their borrowing reach.”
Calling it a “disappointing news” for consumers who are already grappling with the cost of living crisis, Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “Aspiring homeowners may need to rethink whether they can even afford to step onto the property ladder due to rising costs and soaring house prices.”
What the future holds?
Given the continued high rate of inflation, this latest rate rise was anticipated by the money markets, however, experts don't expect it to quash the considerable buyer and seller sentiment in the housing market.
Jason Tebb, Chief Executive Officer of property search website OnTheMarket, said: “Even with another quarter-point rise, interest rates remain low. The housing market is more stable than the frenzy we saw last year, settling into a more manageable, steady, ‘new normal’ environment.”
“The number of properties newly listed for sale is slowly increasing but is still not keeping pace with demand. New listings aren’t hanging around for long, with 63 per cent of properties Sold Subject to Contract (SSTC) within 30 days of first being advertised last month, according to our upcoming OnTheMarket Property Sentiment Index.
“Crucially, buyers remain confident about obtaining the mortgages they need and being able to afford them. Modest increments in interest rates, while unwelcome, are unlikely to result in slamming the brakes as many buyers simply need to move.”
Echoing similar sentiments, CEO of Octane Capital, Jonathan Samuels, said: “With the cost of living also increasing, we can expect buyers currently entering the market to do so in a far more hesitant fashion than they have done previously.
As a result, not only will mortgage approval levels continue to cool but so too will the sums they are committing to borrowing and the end product of this will be a reduction in the current rate of house price growth being seen across the UK market.”
Sounding optimistic about the interest rate changes, Director of Henry Dannell, Geoff Garrett, feels this recent hike will be good for the housing market. He said: “While this latest increase is unlikely to extinguish our appetite for homeownership completely, it will certainly dampen the heightened levels of market activity that have been fuelling the pandemic house price boom.”
