The central bank announced the decision to increase its rate by 0.25 per cent today with a hint that it could peak at 4.75 per cent by the end of 2023.
However, professionals in the mortgage and housing sector expressed their desire for no more rises this year.
Brian Murphy, head of lending at Mortgage Advice Bureau, said further interest rate rises will “continue to pile more pressure on people’s finances”, especially those on tracker or variable rate mortgages.
He added: “For people across the UK, it will seem they’re being squeezed from all angles, with inflation continuing to push prices up at the checkouts, and interest rates likewise increasing the cost of mortgages. There will be hope that we have nearly reached the summit of the interest rate mountain and will shortly start our descent toward a lower cost of borrowing.”
Marylen Edwards, head of buy-to-let lending at MT Finance, said the increase was expected due to market conditions and suggested another may be necessary to tackle “stubbornly high inflation”.
However, she added: “Hopefully this will be the last rise before we start to see a plateau.”
Mark Harris, chief executive of SPF Private Clients, said with inflation expected to fall sharply soon, it felt as though interest rates were “nearing their peak”.
Nick Leeming, chairman of Jackson-Stops, said: “The industry expectation is that the next few months could draw a line in the sand for further rate rises, to ensure the cost of debt does not create more problems than it is attempting to alleviate. Inflation should start to begin its descent into single figures later this year.”
Mark Tosetti, partnerships director of ONP Group, backed this view, adding: “There is a feeling across the market that interest rates will go down in the second half of the year, and we all hope this is the last of 12 consecutive rises.
“If this is the case, it will provide certainty regarding the cost of borrowing in the market, including swap rates. We hope this will in turn drive an increased availability of products to further meet the needs of consumers.”
A different method needed
With inflation remaining in the double figures despite the base rate rising for the 12 month in a row, some commentators wondered if it was time for the Bank of England’s Monetary Policy Committee to change tack.
Nigel Green, the CEO and founder of deVere Group, said households were being punished by the central bank’s delayed action to control inflation.
This harked back to the admission made by committee member Dave Ramsden in October last year, who said faster action in September would have brought inflation down sustainably.
Green said: “They failed with their inaction at the start, passively standing by for far too long last year when the UK was first coming out of Covid lockdowns, and prices were already starting to surge.
“They’re failing again now with this latest rate hike – the 12th in a row.”
He said the central bank wanted to make borrowing more expensive to reduce spending and investment but warned that this could further slowdown economic activity.
Green added: “To add insult to injury, central bank monetary policy is notoriously slow to take effect.
“It is said that changes in interest rates take a year to 18 months to feed themselves into the broader economy. Given the many interest rate hikes over the last 18 months, it would be astonishing if we did not see a marked slowdown in employment growth and demand over the coming months.”
“They’re going too hard, too late,” he said.
In February, committee member Silvana Tenreyro – who has consistently advocated for smaller increases or a pause to the base rate rises – said the 3.5 per cent rate at the time was too high and already guaranteed to bring inflation within target.
She also said that just a fifth of the impact of the base rate rises had fed through to the real economy and cautioned that the central bank was too focused on immediate outcomes rather than long-term ones.
Trevor Williams, chair of the Institute of Economic Affairs’ shadow Monetary Policy Committee and former chief economist at Lloyds Bank, echoed these views and said: “Just as the Bank of England failed to identify inflationary pressures at the tail end of the Covid-19 pandemic, they may be once again focusing too much on present inflation rather than long run trends. The sharp reduction in the money supply points towards inflation coming down quickly over the coming two years.
“Inflation could still dip to around one per cent over the next two to three years and even after adjusting for the bank’s revised forecast suggesting stronger growth, it is expected to undershoot the two per cent target. This trajectory indicates interest rates need not go up any further.”
Guy Harrington, CEO of Glenhawk, said: “The Bank of England may argue it is being forced into a corner, but this has to be the end of the rate hikes. As a tool for bringing down inflation, it’s clear the current approach is failing, so other solutions need to be found.
“The mortgage market is creaking under strain, and distress is starting to show. It may already be too late to prevent an unprecedentedly painful winter for UK homeowners.”
Not fair to borrowers
Again, pointing to the increased costs faced by households, industry figures said the latest base rate rise would negatively impact mortgage borrowers and property demand.
Andy Sommerville, director at Search Acumen, said: “This will be a blow not just to those looking to remortgage and struggling first-time buyers, but also to the commercial real estate sector, where the escalating cost of debt is starting to have massive implications on site viability.”
Adrian Anderson, director of Anderson Harris, said: “After 14 years of historically low mortgage rates, today’s announcement is more bad news for many existing homeowners. The cost of living crisis coupled with the prospect of higher mortgage payments has prompted an increase from clients looking to move to interest-only mortgages in an attempt to soften the blow.
“What next? Who knows, and that is part of the problem. Uncertainty could stall the housing market. High interest rates, and in turn, high mortgage rates, seem to be hanging around for longer than maybe many expected and with 1.4 million households on fixed rate deals ending this year, concerns over an increase in payment defaults in the future is very real.”