The mortgage industry has reacted to the Bank of England’s decision to raise interest rates by 0.25 per cent to 0.75 per cent.
The decision was made following a vote by the Monetary Policy Committee at noon today, 2 August, which resulted in a nine to zero vote in favour of a rise. It is the first time the base rate has risen above 0.5 per cent in almost 10 years.
The mortgage industry predicted the rise, for the most part, and here they react to what it means for the sector.
“The debate around interest rate movement has largely been one of ‘when, not if’ since the increase in November last year. Although many borrowers do appear to have looked ahead and have sought to fix their mortgage rate, those that have failed to do anything so far may finally be triggered to revisit their situation.
“Although rates have been drifting upwards since the run up to the last rate hike, the fixed rate options are still very competitive. Those most vulnerable to rising rates will be borrowers on their lender’s standard variable rate.
“An increase of 0.25 per cent for a £200,000 25-year repayment mortgage could increase monthly payments by around £25 or more. Reviewing their rate could offer them substantial cost savings as well as being able to lock their rate down and protect any further rate rises. Assuming that lenders apply any increase to their SVR, average SVR rates could be around 5 per cent, although the range of SVR varies widely between lenders.
David Hollingworth, London and Country
“In raising rates, the Bank of England has arguably put its reputation before the welfare of the average British household.
“While a quarter per cent increase won’t take home finances to breaking point, it will add to the pressure at a time when confidence is already low.
“The Bank of England’s hope is that this hike will be a shot across the bows to overly indebted consumers, and there is some logic in that.
“But the timing of this rate rise, coming in the shadow of outright politico-economic uncertainty, is less logical.
“Why rock the boat just as we approach the business end of Brexit, all the more so given that inflation is not significantly above target?
“Thankfully, many households have remortgaged onto fixed rates to protect themselves against rate rises in the medium term.”
Jonathan Samuels, Octane Capital
“While today’s modest interest rate decision is unlikely to adversely affect the housing market, the increase to 0.75 per cent, means they are now at their highest level since 2009, and importantly, rates have now risen by half a percent in less than a year. Good things don’t usually last forever however and while the end of this golden period of great mortgage deals won’t be a surprise to the vast majority of prospective and current homeowners, many have become accustomed to a decade of low rates.
“Homeowners on variable rates will finally see their average mortgage payments rise, which combined with higher inflation will mean that some households start to feel the pinch. This, combined with current political uncertainty around Brexit and yet another housing minister in charge, could further add to the trepidation of potential sellers although yesterday’s Nationwide house price index which showed house prices accelerating on the year and more homes coming on to the market was a pleasant surprise.”
Nick Leeming, Jackson-stops
“The decision to increase the base rate means there is light at the end of the tunnel for UK savers who have faced a lost decade in the low interest rate environment, which has done little to help them build nest eggs for holidays, homes or retirement.
“Savers can now look forward to returns from savings accounts climbing, but this is unlikely to happen overnight.
“Whilst it is likely to be a long time before rates ever return to what anyone over the age of 40 considers ‘normal’, it’s important that people understand the positive impact that getting into the habit of savings can have, helping them to make major purchases or as a safety net for unforeseen financial emergencies.”
Charles Haresnape, Gatehouse Bank
“Today’s announcement that interest rates are rising will as expected have a major impact on longer-term lenders, as they may feel compelled to raise rates. This will affect exit routes for short term loans, but unless there is an expectation of further increases in the medium term, I don’t expect rate rises to affect short term lenders.”
Benson Hersch, ASTL
“As the decision to raise the Bank of England base rate today demonstrates, it would seem that current economic indicators have provided members of the Monetary Policy Committee sufficient evidence to reduce monetary easing to the UK economy.
“The increase in the bank base rate seen this afternoon will have little impact on many new borrowers who’ve probably opted for a fixed rate product, which has been the case for the majority of those taking out new mortgages for quite some time with as many as nine out of ten borrowers in recent years opting for a fixed rate product.
“However existing borrowers whose mortgages are directly linked to the bank base rate will see a minor increase in monthly repayments as the movement upwards today opens up the possibility for some households to see an increase in their monthly expenditure over the next few weeks. Those who are on lender revert rates or SVRs will have to wait and see if their lender will pass on the rate increase in full or only in part, whereas those who have a tracker rate are more likely to see the rate passed on in full and possibly as soon as their next mortgage payment. Either way, for those with a tracker mortgage linked directly to the BOE base rate, for every £50,000 of borrowing on a 20 year term mortgage, the interest rate change today would increase their payments by £6 per month.”
Brian Murphy, Mortgage Advice Bureau
“Today’s rate rise will inevitably have a knock-on effect on the mortgage market. Borrowers on a fixed-rate deal have little to fear, as they won’t be impacted until their current deal runs out. Those with variable and tracker rate products, however, will soon start to see their repayment costs rise as lenders begin to up their rates.
“The rise to 0.75 per cent is fairly moderate and borrowers have been enjoying record-low mortgage rates for some time now, so the immediate impact won’t be too severe. However, when it comes to interest rates, the only way is up. It’s likely that longer-term fixed rate products will grow in popularity as borrowers seek financial stability. 10 year fixed mortgages provide a decade of immunity against rising rates and the average cost is relatively low at just 2.74 per cent, compared to 1.73 per cent for a two-year fix.
“However, they often come with early repayment charges if borrowers switch their mortgage deal before 10 years is up. Lenders should therefore offer greater flexibility if they wish to capitalise on the move towards long-term products.”
Shaun Church, Private Finance
“The 0.5 per cent bank rate has finally met it’s Waterloo. The futures market has been calling a 91 per cent probability that the rate would move up recently – so this isn’t exactly an about turn for the MPC.
“That doesn’t change the fact that it can’t have been an easy call for the committee to make. The jobs market aside, the economy isn’t going great guns at the moment and the possibility of a no-deal Brexit – or, indeed, an early general election if the Government falls – will have made the decision harder.
“But it won’t take lenders long to nail their colours to the mast and adjust their pricing, particularly those who have spent the last year absorbing costs instead of passing them onto borrowers. Shorter term fixed rates are likely to be the first to be punished. We may even see lenders hold off a little longer before adjusting five year fixed products. But mortgage rates will be going up sooner rather than later. Borrowers will have to expend a bit more blood, sweat and tears reworking their sums and cash flow projections.”
David Whittaker, Mortgages for Business