The Bank of England has today hiked interest rates to 5%, the highest since 2008 and the thirteenth consecutive rise since December 2021.
The decision comes after official data released yesterday showed that the annual rate of inflation remained at 8.7% in May, despite hopes that it would fall.
The rising interest will put more pressure on those with mortgages, with those on tracker and variable rate deals seeing an immediate increase in their monthly payments, while those on fixed mortgages that are due to expire this year will see a severe jump in repayments.
Of course, it’s not just homeowners and potential buyers that will be feeling the pinch, developers too will be impacted on their borrowing for construction and land purchases, which could lead to fewer starts and ultimately a worsening of the housing crisis.
Here’s how the news has been received in the housebuilding industry:
David Hannah, chairman of Cornerstone Group International, said: “We’ve witnessed most major lenders withdrawing or increasing rates on their mortgage products in preparation for today’s interest rate announcement, which is creating a dire situation for both existing and prospective homeowners across the country. Due to today’s decision to raise interest rates, homeowners coming off fixed-rate deals and moving straight into a 6% mortgage are going to be unable to afford them. That’s going to lead to repossessions and forced sales which is not good news. Fundamentally it’s going to shatter confidence in the market.”
“Such an environment will lead to a slowdown in property sales, as well as a potential decline in property prices, impacting both existing homeowners and those aspiring to join the property ladder. First-time buyers also may now be unable to make a first step onto the housing ladder due to unaffordable mortgage rates. The rise will also have a knock-on effect on the rental market too – it has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further. The result of this is that rental prices and competition will likely increase at a time when people are already struggling.”
“A maximum cap on mortgage payments for homeowners should be considered, with the remaining amount of increased interest being added on to the balance of the mortgage. By doing this, more homeowners will be able to afford their monthly payments and it will mean more people and families can keep their homes. Everybody’s just about managing at the moment and if you look at the underlying factors that created this inflationary cycle, they’re not in the control of consumers.”
Marc Vlessing, chief executive of Pocket Living, said: “This is starting to feel like the early 1990s all over again. Slow growth, stubbornly high inflation, rapidly rising interest rates starting to hurt homeowners and huge political uncertainty. Today’s significant rise comes as a hammer blow to many of the priced-out generation who barely managed to get onto the property ladder, as well as shattering the dreams of many more who face a perfect storm of rising rents eroding their ability to save for a deposit, and rising costs to service a mortgage. But it will also hit developers hard and we are likely to see starts, especially within London, fall by as much as 50% in what I think is going to be a really tough year for development in the capital. London really is in a very precarious position after this announcement.”
Ben Woolman, director at Woolbro Group, said: “The naive idea that homeowners would simply ‘adjust’ to higher interest rates is now dead in the water.”
“Mortgagers are instead having to come to terms with the life-changing consequences of this latest rate rise which, for many, will be devastating. But make no mistake, today’s turmoil has been in the making for many years.”
“In lieu of building the new homes Britain so desperately needs, the government has instead pandered to Nimbys and those who are all but completely opposed to any form of new development.”
“It is only now, in the run-up to a general election, that it has dawned on the Tories that the housing crisis they themselves have presided over could be their undoing. If there was ever a time for the Prime Minister to publicly commit to reform of Britain’s outdated and ineffective planning system, it is now.”
“While this wouldn’t help struggling mortgagers in the short term, it would prevent local politicians from blocking new housing developments where they are needed most.”
“Planning reform is the only long-term solution to Britain’s housing crisis. By bringing the supply of new homes in line with demand, we can eventually make homeownership a reality for those who today are completely priced out of the market.”
James Mole, director at J3 Advisory, said: “While this is unfortunate news for borrowers nationwide, I believe the recent increase in interest rates is not as surprising as certain media outlets may portray it to be.”
“The underlying inflation problem remains a persistent concern, making this decision by the MPC appear inevitable. I can’t help but ponder whether the remaining effects of historical fixed-rate mortgages are concealing a bigger concern.”“We must hope that the Bank has not gone too far today and this action can get inflation under control quickly so that we can live as little time as possible in this new high-interest rate era. Sadly though, I think it will be here for a while longer yet.”
Managing director of Sirius Property Finance, Nicholas Christofi, commented: “Interest rates are now at their highest in over 15 years, but it’s not just the higher cost of borrowing that will be weighing on the minds of UK homebuyers, it’s the consistency at which rates are climbing.”
“Many buyers are finding that, having agreed a mortgage in principle, the goalposts have already moved by the time they find their ideal home and they’re having to return to the drawing board to reassess just what they can afford to borrow.”
Adam Oldfield, chief revenue officer at Phoebus Software, said: “Whether today’s base rate increase will immediately affect mortgage rates is unlikely after recent increases following the surge in swap rates. However, borrowers seeing the headline today will be fearing that another hike is inevitable. With 2-year fixes standing around 6%, the decision for those coming off fixed rates will be a difficult one. Do you fix at six or drift onto an SVR in the hope that at some point in the next two years rates come down? Not an easy decision, especially if as many believe the BoE hasn’t yet finished putting rates up.”
“The fact that we have been living in an artificially low-interest environment for so long means that, perhaps, some borrowers became complacent. Now the increase in their mortgage payments has come as a massive shock. Nonetheless, paying the mortgage is not optional and borrowers are going to need to adjust to this new environment, the new normal. Unfortunately, there will be some that simply can’t manage, for whatever reason. We are already seeing the rate at which arrears are rising increase and lenders are going to need to be prepared. It will be very interesting to see what comes out of the Chancellor’s summit tomorrow. Will there be increased pressure from the government for lender leniency?”
