At midday today, the Bank of England’s Monetary Policy Committee (MPC) voted to increase the interest rate by 0.5 per cent to 2.25 per cent.
This marks the seventh time in a row the rate has risen, matching the largest rate hike seen in August when it was also upped by 0.5 per cent to 1.75 per cent.
Lower than expected but ‘no consolation’
Given the current cost-of-living crisis, with inflation running at 9.8 per cent and energy costs set to spike on 1 October (despite the energy price cap), brokers and lenders alike envisage that the announced rate rise will prove another blow to already overstretched borrowers.
John Phillips, national operations director at Just Mortgages, said: “[While] there was a certain inevitability to this latest rate rise, that will be no consolation to those watching their mortgage payments rise or seeing the sub-four per cent mortgage product they wanted being withdrawn from the market.”
This opinion was echoed by Richard Pike, chief sales and marketing officer at Phoebus Software, who said: “While we were expecting it, this rise will add further pressure to finances that are already under so much pressure with the rising cost of living.”
Move on mortgages now, don’t wait
Once news of the base rate increase came through, the message from advisers came out loud and clear – borrowers need to move fast to secure the best deals. Although there were notes of caution from some brokers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, felt that the change would mean “a considerable increase” in monthly payments for those on variable rate mortgages.
He explained that those on a £300,000 variable rate mortgage holder would have to pay an extra £1,500 a year, and this could mean some households would really struggle.
He said that mortgage deals could be reserved up to six months before, so it was worth securing a new product now that can be moved onto once a customer’s existing deal ended.
“We are being approached by many borrowers on fixed rates considering paying early redemption penalties in order to secure another fix sooner rather than later. This may or may not be in your best interests, depending on the rate and length of time left to run, so it is important to seek advice from a broker,” Harris noted
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), agreed that looking earlier for fixed rate deals would help navigate uncertainty but warned of potential penalties of switching early.
He said: “We would certainly recommend looking into it now if you can. However borrowers [should keep] in mind the penalty you may face for switching early, and that everyone’s circumstances are different.”
For remortgagors, advanced planning will become a vital part of their arsenal, according to Emma Hollingworth, distribution director at MPowered Mortgages.
She said: “Securing rates quickly, before they disappear and are replaced, is likely to become an increasingly important factor for homebuyers and those looking to remortgage.
“MPowered Mortgages has worked out that a homeowner could save over £2,000 over a two-year period if they lock into a deal now, if mortgage rates rise alongside the base rate by a further 0.5 per cent.”
She encouraged remortgage customers to “plan ahead and lock in rates at the start of their remortgage window versus waiting to the last minute”.
Adrian Anderson, director of property finance specialists Anderson Harris, had a blunt message for borrowers.
“Don’t wait, take action now as its likely the situation will get worse in the short term,” he said.
Brokers have ‘critical role to play’
Given the upward trajectory of rates, mortgage advice for borrowers is now a premium commodity and brokers are going to be crucial in stabilising the market.
Steven Seal, Bluestone Mortgages CEO, said that brokers had a “critical role to play” for existing and would-be borrowers as many would never have experienced a consecutive rate rise environment, and brokers could demonstrate the range of options available despite market conditions.
He added: “As for the customers who are concerned about how this rate rise will affect their ability to meet their mortgage repayments, we highly encourage them to speak to their lenders as early as possible.”
MAB’s Murphy concurred: “The best course of action is to speak to a whole of market mortgage broker or your mortgage lender about the financial implications of the latest rise for your own personal situation.”
Others noted that this was the time for advisers to prove their mettle. Kevin Roberts, managing director of Legal & General Mortgage Services, said: “This is an opportunity for advisers to show their true worth. Good quality financial advice will be crucial in helping borrowers see past the initial headlines and understand what all this news means for their particular situation.”
Homemovers and first-time buyers will be impacted
While those across the property spectrum could be hit by the rate rise, experts noted that that the effect would be felt most in the confidence to move and take on debt.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “The increase will impact first-time buyers and new borrowers particularly, bearing in mind approximately 80 per cent of borrowers are on fixed rates.
“However, with UK Finance forecasting that 1.8 million deals are due to end at some point next year, there will be plenty of borrowers looking for new mortgage deals at a time when rates are likely to be considerably higher.”
Leaf said that while rates were still low compared to their historical average the impact was exacerbated by “continuing worries about inflation and the economy generally”.
Simon Webb, managing director for capital markets and finance at Livemore, noted that there were many people over 50 would be “really worrying about how they are going to make ends meet”.
“Of particular concern are those coming to the end of a mortgage fixed rate term, who are facing huge leaps in their mortgage payments and mortgage prisoners who are often at the mercy of a lender’s rising standard variable rates. This rise leaves a lot of people increasingly vulnerable.”
A note of optimism?
Amid the uncertainty and volatility that the rate rises will undoubtedly cause, several experts hinted at better times to come – pointing to a potential cut in stamp duty, cooling house prices and the fact that the Bank of England may show restraint on raising rates in the future.
Nathan Emerson, CEO of Propertymark, urged that those looking to enter the market “should not be spooked by this”, despite the gloomy headline figures.
He continued: “Despite increases, the majority of buyers and sellers are taking advantage of the cooling off in house prices and the slight easing in competition, and they continue to enter a strong and healthy market.”
L&G’s Roberts noted that: “There might be help on the horizon for new borrowers, as the government is expected to announce a cut to stamp duty later this week. There are then some reasons for positivity, in spite of the headlines.”
Meanwhile, SPF’s Harris predicted that rates were unlikely to go much beyond three per cent, as if the Bank of England did increase the base rate to four or five per cent “it risks causing greater problems than those it is attempting to control”.
And now, all attention will now turn to tomorrow’s mini Budget to see just how the Chancellor will deal with the cost-of-living crisis and whether he will, as expected, cut stamp duty.
