Property Industry Reacts to Fifth Consecutive Interest Rates Increase

The Bank of England has just made the decision to increase interest rates for the fifth consecutive time.

The proposals in the Rental Reform White Paper announced by the government today will be welcome news for tenants, who will see added security and greater powers to challenge poor ethics from their landlords.

However it’s the landlords who play by the rules who are likely to be impacted the most following the outlined proposals.

Simon Gammon, Managing Partner, Knight Frank Finance, said:

“Today’s decision guarantees that mortgage rates are going to rise at a steady pace throughout the summer and likely beyond.

Lenders are already repricing their product lines rapidly, often as much as twice a week.

All are swamped with applications to remortgage, so are repricing both because interest rates are rising and because nobody wants to be the cheapest on the high street for fear of being overwhelmed.

This means in many cases we are seeing mortgage rates rise faster than interest rates.

Homeowners with a mortgage up for renewal or borrowers looking to buy should act now, because waiting just a couple of months is likely to mean hundreds of pounds extra in interest payments each month.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:

“This rise comes as no surprise and the market has already factored in it, particularly for new borrowers.

With around half of homeowners on five-year fixed rate agreements and only 5 per cent on variable terms, its impact will be marginal.

It will have more of an effect on confidence to take on debt and disproportionately will impact lower-income households who are less able to dip into savings to make up a shortfall.

Affordability calculations may be compromised which could affect borrowing potential as well.

The net result will slow demand and the pace of house price growth but won’t reduce prices bearing in mind the continuing huge imbalance between supply and demand.”

Anna Clare Harper, director of real estate technology platform IMMO, says:

“Higher interest rates have their most significant impact for borrowers on variable-rate mortgages.

Those who have chosen flexibility over a fixed commitment in such personal financial decisions will see their costs increase.

It’s likely that these property owners become more willing to sell, and at lower prices, boosting liquidity and supply in the housing market.

This is, however, expected to be a relatively short-term move, creating a temporary shift in negotiating power from sellers to buyers for the next 18 to 24 months rather than forever.

As ever, cash buyers will have the upper hand in some respects but they will also now have a higher cost of holding cash.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says:

“With latest GDP figures showing a fall for the second consecutive month, it is no surprise that the Bank has raised Base Rate again.

Before the GDP figures were released, the money markets had been factoring in a 50-basis points rise but with Swaps increasingly markedly, many specialist lenders have already repriced and a 25-basis points increase was expected.

Those who are on a variable-rate mortgage and are worried about further rising rates should consider opting for a fixed-rate deal.

Rates can be reserved up to six months before you need them so it may be worth borrowers securing a deal now which can be moved onto when their existing deal comes to an end.

Speak to an independent mortgage broker who will look at all the deals on the market and find the right one for your circumstances.”

Giles Coghlan, Chief Analyst at HYCM said:

“Today, the Bank of England has held its nerve with a dovish 25bps hike, in light of slowing growth and the prospects of a negative 2023 GDP.

Prior to the announcement, the most recent surge in inflation from the U.S. had caught the attention of short-term interest rate markets (STIR) for the BoE this week, with analysts pricing in a 71% chance of a 50bps hike in the run up to the announcement.

On this occasion, however, the central bank has opted to resist temptation.

Faced with mixed signals from the U.K. economy, the Monetary Policy Committee has had to weigh a tight labour market, the cost-of-living crisis and surging energy prices against Government intervention with fiscal stimulus.

With the threat of triggering Article 16 also looming in the backdrop, policymakers clearly want to avoid hitting the brakes too hard on an economy that is already stalling of its own accord.

Traders and investors should watch for GBP weakness and a potential rate cut in 2023.”

Jatin Ondhia, CEO of Shojin, comments:

“Today’s decision is no surprise; the Bank of England’s dovish stance is expected as its battle with runaway inflation is only just beginning. In reality, the question right now is how much higher will interest rates go?

Given the current macroeconomic challenges, it is imperative that investors monitor how different markets and assets are faring, rethinking their strategies accordingly.

Diversification and agility could prove key in navigating this testing climate, and it should be expected that most resilient markets – such as real estate – will continue to attract investor demand, particularly among those seeking relatively safe options that stand a chance of keeping pace with inflation.”

Tomer Aboody, director of property lender MT Finance, says:

“This rate rise was fully anticipated by the markets due to the need to manage soaring inflation.

It will help cap some excess spending by consumers, although many have been cutting back where they can for a while in the face of rising bills and the wider cost of living.

Mortgage pricing continues to edge upwards, but many lenders have not passed on the full extent of previous rate rises due to the highly competitive market.

If they want to attract business, they need to absorb a proportion of rate increases; the question is, how long will they be prepared to do this for?”

David Johnson, managing director of independent property consultants INHOUS, says:

“We have yet to see any real impact on the upper end of the capital’s property market from this succession of interest rate rises.

Even this latest increment in rates is unlikely to change anything just yet although it is starting to come up in conversation a bit more.

It’s a different story in the mainstream market; many feel a recession is inevitable and the latest in a series of rate hikes is bound to impact homeowners.

Many buyers have a need for a property in London so they are seeing the longer-term picture. Vendors are still achieving very strong prices with some getting records prices for their streets.”

Alex Lyle, director of Richmond estate agency Antony Roberts, says:

“Interest rate rises have yet to make a significant impact on our market but in six months’ time, it might be a different story if there have been several further increases.

Those relying on a mortgage may feel differently; some buyers who have taken a while to find a property are finding that the mortgage rate they were initially quoted has doubled.

They are revisiting their budgets, which will impact what they can buy, particularly for first-time buyers.

Likewise, those who have reserved a decent mortgage rate are panicking that they won’t get the deal across the line in time to be able to take advantage of it.

The price of petrol and diesel, as well as the cost of living, is adding fuel to the fire.

At some point, the culmination of these higher costs across the board will bite.”

Mohsin Rashid, co-founder of ZIPZERO, said:

“That’s now five interest rates hikes since December.

While designed to curb spiralling inflation, in reality this will only place a greater strain on many households’ finances in the months to come.

Anyone with debts, most notably mortgages, could now see their repayments increase, eating further into their budgets for the everyday essentials.

Action is needed, and fast.

But leaving it up to Britons to ‘take control of their finances’ is too lazy.

Rather, public and private sector collaboration is needed – the Government, energy providers and retailers must respond quickly, doubling down on their commitments to help people through this challenging economic climate.

It’s telling that, according to ZIPZERO’s poll of 2,000 UK adults just this week, 84% think energy providers should be doing a bit (25%) or a lot (59%) more to help people through the cost-of-living crisis, with 81% saying the same of the Government and 70% wanting retailers to offer more support.

So, we’re calling on David Buttress, the Government’s new ‘cost-of-living tsar’, to work with energy firms and retailers to band together and deliver workable solutions to help customers carve out a more financially secure future.”

Michael Bruce, CEO and Founder of Boomin, says:

“A fifth consecutive interest rate increase will come as a real concern for many homebuyers.

Having seen house prices spiral over the last two years, they are now facing an increase in monthly mortgage costs at a time when the high cost of living is already putting pressure on household finances.

This will no doubt cause many to reconsider just how much they are willing to borrow and this more conservative approach may lead to a reduction in the rate of house price growth seen across the market.”

CEO of Octane Capital, Jonathan Samuels, commented:

“While largely expected, today’s decision will cause further turbulence in what has already been a drastically fluctuating mortgage market in recent months.

Some lenders have already jumped the gun and increased their rates in anticipation of this increase, but today’s confirmation will now open the floodgates in this respect, as the sector struggles to not only deal with a climbing base rate, but also with the extreme volatility being seen in the swap rates market.”

Director of Henry Dannell, Geoff Garrett, commented:

“With rising inflation remaining a concern, a further increase to the base rate was to be expected as the Bank of England looks to curb the rising cost of living across the UK.

While these increases may have been incremental, the cost of borrowing is now substantially higher than it was just six months ago and this will, of course, impact the housing market and the price buyers are willing to pay.

We’ve seen mortgage approvals fall by an average of 3.4% over the last three months and we expect buyer demand will continue to slowly reduce over the course of the year thus dampening the extraordinary rates of house price growth seen in recent times.”

Founding Director of Revolution Brokers, Almas Uddin, commented:

“An increase in interest rates is always likely to bring an undertone of panic to the UK housing market but, as it stands, there’s no need to run for the hills just yet.

There are still a range of lenders offering some very affordable products to suit a range of buyers and so it’s vital that you shop around when looking to secure a mortgage and consult a whole of market broker.

Financial position is key when securing these more favourable rates and so when looking to do so, ensure that your deposit is as robust as it can be and that you’re cutting back on unnecessary spending elsewhere.”

Managing Director of Barrows and Forrester, James Forrester, commented:

“The UK property market has remained resolute despite a string of rates increases in quick succession and so today’s decision is unlikely to divert it from its current trajectory.

Homebuyers continue to swamp the market, taking advantage of what is still a relatively affordable cost of borrowing and while there remains an insufficient level of stock to satisfy this demand, house prices will continue to climb.”

Director of Benham and Reeves, Marc von Grundherr, commented:

“The pandemic property market boom has caused many homebuyers to borrow beyond their means in order to secure a home, many of whom may now be regretting such a decision with interest rates continuing to rise.

While fixed rate products will provide a certain level of comfort and certainty, those now approaching the end of this term will find the cost of their monthly mortgage payments is likely to climb sharply.

This increased cost of borrowing may well put potential buyers off, or at the least, reduce the price they are willing to pay.

This continual squeeze in money costs is bound to bite eventually and these rate hikes are only likely to push the economy toward recession, rather than halting inflation that stems from reasons beyond the consumers control.”

Christina Melling, CEO of Stipendium, commented:

“Rising interest rates are somewhat of a double edged sword for the nation’s homebuyers, particularly those looking to get that first foot on the ladder.

On the one hand, the monthly cost of borrowing is now likely to increase even further, on the other, it will at least mean they see a better return where interest on their hard-earned saving pot is concerned.

That said, while mortgage providers are quick to adjust their rates in line with the Bank of England, it can take far longer for this benefit to filter down to variable rates savings accounts.

So it’s fair to say that today’s increase won’t come as welcome news to those currently struggling with the cost of buying a home.

The chances are rates will continue to climb over the coming months and so those that are coming to the end of a fixed term or are currently on a variable rate product will want to carefully consider their next move.”

Managing Director of HBB Solutions, Chris Hodgkinson, commented:

“A further rates increase means that many home sellers may now find their sale in jeopardy, as the nation’s homebuyers start to get cold feet due to the increased cost of borrowing.

While we’re unlikely to see buyer demand evaporate completely, this growing uncertainty is sure to dent market confidence.

As a result, we can expect to see market values stutter over the coming months, joined by an unsavoury supporting cast in the form of increased fall throughs and down valuations, as further increases are forecast for the months ahead.”

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