The Bank of England’s Monetary Policy Committee (MPC) increased the base rate by 0.5 per cent to 3.5 per cent. This was widely predicted and expected by the markets.
It was also below the 0.75 per cent increase last month, which was the largest increase since 1989 and the highest the base rate has been since 2008.
Rightmove’s property expert Tim Bannister said that as the rise was “largely expected by the markets” it will already have been factored into many mortgage lenders’ fixed rates.
“The good news is we don’t expect this rise in the base rate to translate directly into increases in current fixed mortgage interest rates,” he noted.
Bannister said that in late September the market saw a “rapid increase in mortgage interest rates beyond the base rate trajectory” so the expected direction of travel for fixed rate mortgage pricing next year would be downward.
He continued: “The rise in the base rate will affect those on a tracker mortgage, though average tracker rates are currently lower than fixed rate deals.
“We don’t expect this rise to have an impact on homemover behaviour beyond what we’re already seeing. Many people will be using this time between Christmas and New Year to assess their options, consider what they can afford, and make a move next year, and they will be spurred on should fixed rate mortgages drop as anticipated.”
Matt Bartle, director of products at Leeds Building Society, said that although some potential buyers may be “temporarily holding back on entering the housing market until economic conditions stabilise”, it expected their desire to “remain”, which would underpin housing demand.
“Despite the current worsening economic outlook, the UK housing market has previously proven itself to be resilient and adaptable to rapidly evolving market conditions. It has survived economic shocks before and we are confident that it will do so again,” he noted.
Latest base rate rise ‘least surprising rise’ over last few months
John Phillips, national operations director at Just Mortgages, said the increase was “least surprising rise in the past few months” as it came after a half per cent increase in the US and other European countries.
He noted that as this was the ninth increase, it would grab some headlines but the good news was that inflation was beginning to ease and the annual rate of price increases begin to slow.
The latest inflation figures from the Office for National Statistics showed that it had fallen slightly to 10.7 per cent, down from 11.1 per cent in October.
Phillips continued: “Let’s not forget that house prices even in the midst of a cost of living and energy crisis continue to rise with figures from the Offices for National Statistics revealing that on an annual basis, average UK house prices were 12.6 per cent higher than in October 2021, up from 9.9 per cent in September.
“The underlying housing market is still strong and brokers should be working their socks off to expand their businesses by diversifying into new product areas and ensuring their clients’ protection needs are met.”
He added: “Every interest rate rise is an opportunity for brokers to open a dialogue with existing and new mortgage clients.”
Karl Wilkinson, CEO at Access Financial Services, agreed that the focus would be on this latest base rate increase being the ninth successive hike but said there were “reasons to be positive”.
He also pointed to easing inflation and concurred that the UK housing market “remains robust”.
Wilkinson continued: “Attention must remain on helping customers achieve good outcomes in line with Consumer Duty.
“Borrowers will need to be cautious and seek professional advice from mortgage brokers to ensure they get the loan for their circumstances. Lenders also need to adopt sensible lending policies so that the danger of rises in repossessions can be averted.”
Fixed versus tracker mortgage dilemma deepens
Brian Murphy, head of lending at Mortgage Advice Bureau, said that in recent weeks there had been “significantly more new mortgage borrowers” opting for trackers as the pricing could be up to 100 basis points lower than fixed rates.
He said many would have expected the 0.5 per cent increase but it could mean “more borrowers may once again feel fixed rate products offer better value”.
Murphy continued: “For those existing borrowers on tracker or variable rates, many will see an immediate and painful increase in their monthly mortgage payments, although a number of building societies may not necessarily pass on the full increase to those borrowers who are currently sat on their standard variable rate (SVR).”
He said it was important for homeowners and prospective borrowers to not “launch into a knee-jerk reaction”.
Murphy said: “There are still options for those worried about mortgage costs and some degree of price competition has re-emerged in the market as lenders look to build a pipeline of cases for completion in 2023. For those who have concerns a whole of market mortgage adviser would be more than happy to take you through the best options for you.”
Figures from Moneyfacts show that the average SVR is 6.4 per cent, with the average two-year fixed rate coming to 6.01 per cent.
The average five-year fixed rate is 5.8 per cent and 10-year fixed rate comes to 5.69 per cent.
David Hollingworth, associate director at L&C said that homeowners reeling from higher mortgage rates and the rising cost of living would “find little comfort” in today’s hike but there had been a “positive shift in fixed rates”.
He said this would help borrowers lock down mortgage payments at a more “palatable level” than in the aftermath of the mini Budget when rates breached six per cent.
Hollingworth continued: “As we return to a higher rate environment borrowers will increasingly face the dilemma of whether to fix or track and for how long. No one knows what will happen with interest rates, so advice will help to spell out the various options for borrowers.
“There’s likely to be more competition in the market which could help improve the range of mortgage options but borrowers need to look not only at rate but also continue to factor in the fee package as a whole. “
“Those that took a holding position or risk falling onto a SVR should review, as the margin between SVR and fixed rates has already widened even before today’s rate announcement.”
‘Rock-bottom rates of the past are long gone’
Tomer Aboody, director of property lender MT Finance, said that although borrowers would feel rate rises were “coming thick and fast” it would hopefully “succeed in getting double-digit inflation under control quicker”.
He continued: “The Prime Minister and his team will then need to come up with some stimulus to turn up the economy and ensure the hurt isn’t long term. Borrowers will have to come to terms with the new norm, which is higher interest rates, as the rock-bottom rates of the past are long gone.”
Aboody added that as rates rise and the cost of living increases, the “negative impact on the housing market is inevitable”.
“Given the importance of the housing market to the wider economy, the government needs to provide some form of assistance to stimulate the market. This could take the form of a restructure of stamp duty or some form of mortgage interest tax relief to alleviate some of the many stresses that borrowers will face in coming months.”
