Borrowers have rushed to re-mortgage in recent weeks after policymakers heavily trailed today’s base rate increase to 0.5%.
The hike from the Bank of England has been teamed with a warning that the UK’s looming departure from the European Union is starting to affect the economy.
The political backdrop has given the rate rise extra weight, according to Lea Karasavvas, managing director at Prolific Mortgage Finance (pictured).
He said: “The added fear of Brexit makes this particular rate rise almost more fearsome than the last witnessed back in July 2007, as people are already fearing the uncertainty of a hard or soft Brexit.
“Coupled with high inflation and the reality that many do not feel that given inflation they have received a pay rise in the last seven years, there is an air of doom and gloom around this rate rise.”
There have also been some concerns that the rate increase could dampen home sales and the property market.
Peter Goodman, chief executive of Homelyfe, said: “Potential buyers, particularly first-time buyers, should be wary of how the Bank of England’s decision to increase the base rate figures will affect their mortgage.
“Should banks and lenders pass on the base rate increase to consumers, we may very well see a large knock on the UK property market.”
Slight purse string pinch
However, many critics largely dismissed the effects of the 0.25% rate rise as minimal. The Bank of England Base Rate is now only back at the level long-held between 2009 and 2016, and remains low by historical standards.
Furthermore, monetary policymakers are only forecasting another two rate increases over the next three years, taking rates to 1%.
Mark Weedon, head of research at Property Partner said: “There has been a lot of hype surrounding the first increase in interest rates for more than 10 years, but when it comes to housing affordability the impact of today’s rise will be negligible.
“Some homeowners will feel a slight pinch to the purse strings, but not at a level that should cause stress for many homeowners.”
Shaun Church, director at Mortgage Broker Private Finance, added: “Rising rates are a key consideration for mortgage affordability. However, lenders’ stress tests are purposefully designed to ensure borrowers can cope with this.
“It’s also important to remember mortgage rates are still at a very low base and there would need to be a significant amount of movement before the cost of borrowing is no longer considered low.”