Frances Haque, Santander UK chief economist, said the panel’s decision was in line with market and other forecaster views.
“Although the impact from Plan B restrictions will have had a negative effect on growth,” Haque said, “the short duration of the restrictions has meant that the MPC could have more confidence in the economy sustaining another rate rise immediately after the last increase.
“The question now is when any further hikes in rates will materialise which will remain heavily dependent on the path of inflation following the forecast. The MPC has provided previous guidance that rate hikes will move in small increments, and they will be mindful of choking any recovery, particularly as growth forecasts are starting to be cut for 2022 as the rising cost of living starts to bite.”
Richard Pike, Phoebus Software sales and marketing director, said the increase came as no surprise “given the way that inflation is spiraling upwards.”
A tight vote
However, the fact that the five-four vote “was so tight and those in the minority wanted to increase to 0.75 per cent is telling for the next meeting,” Pike added.
“If the Bank starts to raise rates in increments of 0.5 per cent it will not take long for the increase to have a marked effect on mortgage interest rates,” he said.
With consumers facing increased living costs with inflation now at a 30-year high of 5.4 percent, and sharply more expensive gas and electricity, “this could be a tough year for many”, Pike said. “There will be some households that are already finding it hard and lenders should be looking forward and ensure they are communicating with their borrowers before situations get too bad.”
Kevin Roberts, director of Legal and General Mortgage Club, said the increase was largely designed to curb inflation, but “that won’t be of much consolation to homeowners facing stretched finances, higher debt repayments and the rising cost of living. Speaking with a professional mortgage adviser is an essential next step for all homeowners – with rates set to rise further, doing so now could prove to be a wise move in limiting the financial impact.”
John Phillips, national operations director at the national broker firm Just Mortgages, took a more optimistic view.
“Although there may be some negativity around the decision to increase base rate, it will not dampen the desire to buy properties,” he said. “UK inflation leapt to 5.4 per cent in December – the highest level in nearly 30 years – so the decision by the Bank of England Monetary Policy Committee is hard to argue with.”
While mortgages will become slightly more expensive, Phillips said that competition between lenders should keep rates relatively low: “The increase is unlikely to put anyone off buying and it highlights the need for advice from brokers. Fixing for longer terms may become the norm as interest rates are anticipated to continue rising in the coming years.”
Pandemic outlook improved
Adrian Anderson, director of the property finance specialists Anderson Harris, mentioned the role of the pandemic in the BoE’s move. “The Covid outlook has improved however over the last month which has given the Bank of England confidence to raise rates once again and impose the first back-to-back rate hike since 2004,” he said.
“It’s not all bad news for borrowers. It’s interesting to see that demand for long-term residential fixed rates is driving lenders to offer more 10-year fixed rate products with Halifax launching a 1.68 per cent 10-year fixed rate for homebuyers with a 40 per cent deposit and Lloyds Banking Group an even more competitive rate of 1.66 per cent for borrowers with a 40 percent deposit. At a time when interest rates are rising it may be tempting to lock into this low rate for longer although borrowers need to be aware of the early repayment charges which lenders can levy if they are to redeem the mortgage before the 10 years is up.”
Martijn van der Heijden, chief financial officer at Habito, said the increase was “bound to be a shock for homeowners who aren’t used to consecutive rises”.
“The bad news is that some city forecasters are expecting further back-to-back rate increases this year.”
