The base rate currently stands at 0.75 per cent after three hikes since December, adding £250 a year for every £100,000 on a variable rate mortgage.
Brokers said lenders for the most part had already priced in the increase to their products and as the majority of borrowers were on fixed rates, it would have minimal impact.
However, some said the increase would affect first-time buyers, borrowers on variable rates and those looking to remortgage.
Mark Harris, chief executive of SPF Private Clients, said there was an “upward pricing trend across the board” with sub-one per cent deals disappearing from the market.
He continued: “The BoE must carefully balance the need to control inflation with the wider economic challenges posed by rising interest rates. The purchase market is still active although the froth has gone. Activity in the remortgage market is picking up and is set to continue as borrowers look to secure rates before there are further increases.
“Rates can be booked up to six months before they are required and we are getting a lot of interest from motivated borrowers in doing this. Even with this latest rate rise, we remain in an extremely low interest rate cycle and expect that to be the case indefinitely.”
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, also did not expect the rise to have a major impact on the eight in 10 mortgage holders currently on a fixed rate. He added that those on variable rates are likely to see payments rise but said this would be “modest”.
He said he hoped the Chancellor would “provide some additional support” to households in the Spring Statement next week.
First-time buyers will be ‘heavily impacted’
Karen Noye, mortgage spokesperson at Quilter, said the increase in the base rate was “understandable” but was “yet another blow to generation rent”.
She explained: “First-time buyers will be among the most heavily impacted by this further rate rise as they often need to borrow the maximum amount available and are faced with higher interest rates as a result of high loan to value borrowing. This rate increase coupled with the rising cost of living means they are faced with insurmountable affordability problems without significant help from the Bank of Mum and Dad.
“While most borrowers are on fixed rates and therefore won’t feel the impact of a rate hike until their deal runs out, those looking to remortgage in the short-term will certainly feel the pinch. Similarly, homeowners on a tracker mortgage based on the BoE’s base rate, or those on their mortgage provider’s standard variable rate (SVR), will see a swift increase in their bills.”
She said lenders tended to price anticipated rates rises so potential borrowers looking at deals were “unlikely to see huge changes” in products on offer.
She added: “This increase may also kibosh the ever-increasing house prices we have seen over the past few years. The race for space, the stamp duty holiday and lockdown savings all fed into creating an incredibly hot housing market. However, today’s news coupled with the economic uncertainty are all likely to finally halt runaway house prices.”
‘Borrowers need to act quickly’
David Whittaker, chief executive at Keystone Property Finance, said borrowers “need to act quickly” as lenders will likely adjust their pricing.
“Great deals will inevitably start disappearing, so it pays to be prepared and proactive,” he said.
Colin Bell, co-founder and chief operating officer of Perenna, said today’s increase could prompt borrowers to opt for longer-term fixed rates and that product transfer volumes were “already high”.
He explained: “Long-term fixes avoid the uncertainty and stress of tracker rates or short-term fixes – as such, the next era of the mortgage market will be characterised by borrowers locking in for longer. Lenders have already withdrawn more than 500 fixed rate mortgage products in the last month alone and today’s decision may cause even further disruption to the market.”
Martijn van der Heijden, chief financial officer at Habito, said it was seeing more remortgagors opt for longer deals, noting that 57 per cent of its customers were taking out five-year fixes while 10-year deals were four times more popular than the year before.
He said: “For the quarter of UK homeowners who are on a variable, tracker, or SVR, it’s likely they’ll 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. If the Bank needs to raise rates several more times over the next two years, when homeowners do come to remortgage they could see prices much higher than where they are now.”
Lenders need to ‘absorb some of the rate increases’
Tomer Aboody, director of MT Finance, said lenders needed to absorb the latest bases rate increase in order to stay competitive.
“Mortgage pricing is edging upwards, but many lenders up until this point have not passed on previous rate rises in full due to a highly competitive market. If they want to attract business, they need to absorb some of the rate increases; the question is, how long will they be prepared to do this for?” he said.
Vikki Jefferies, proposition director at Primis, added that economic uncertainty was slashing the number of products available.
She said: “Lenders are beginning to act more cautiously in order to mitigate the risk of borrower defaults, namely by reducing the number of mortgage products they offer. Brokers will now need to be more proactive than ever to secure the best outcomes for their customers. This is particularly the case for those who have complex financial situations, and brokers should act quickly to help these customers.”