The Bank of England has raised interest rates for the 10th time in a row, upping the base rate by 0.5% to 4%.
The increase see rates hit the highest level seen since autumn 2008 as the central bank battles to bring down inflation.
With consumer price inflation having eased slightly in November, down to 10.7% from 11.1% in October, there had been speculation that a rise could have been smaller.
However, the Monetary Policy Committee voted 7 to 2 for the 0.5% rise. The BoE has an inflation target of 2%.
Later today the European Central Bank is expected to increase rates across the EU by 0.5% while the US Federal Reserve lifted its rates by 0.25% last night.
Reaction
Clare Beardmore, director, Legal & General Mortgage Club:
“Today’s decision by the Bank of England to raise the base rate by 0.5% reinforces the need for good advice in this market, not just for new buyers, but also for those nearing the end of their fixed-rate period. Speaking with an expert can help borrowers see past the headlines and get a better grasp of the options available to them.
“With 57% of fixed-rate deals also coming up for renewal this year, these existing homeowners can gain from professional support which advisers are there to provide. The majority of homeowners will have seen the value of their home increase since the last time they took out a mortgage, and this new value could help them unlock lower loan to value (LTV) ratio products, potentially with better rates.”
Emma Hollingworth, managing director of mortgages at MPowered Mortgages:
“While today’s decision by the Bank of England to raise interest rates by 0.5% will again increase the cost of borrowing across the UK, the mortgage market should remain resilient. This is especially the case given swap rates continue to make for positive reading.
“However, the cost-of-living is likely going to stay high for the foreseeable future. It is important the industry continues to support homebuyers and remortgagers by keeping rates as low as possible and by innovating products to suit consumer needs.
“Providing a smooth mortgage journey also continues to be important and at MPowered Mortgages we are committed to using AI and data-driven innovation to make the mortgage journey as quick and simple as possible for all involved.”
Rachel Springall, finance expert at Moneyfacts.co.uk:
“Borrowers coming off their fixed rate deal will be disappointed to see this latest rise to the Bank of England base rate, particularly if they plan to sit on their standard variable revert rate over the shorter-term in hopes that fixed rates will come down before they refinance. The mortgage market is slowly recovering from the volatility of interest rate uncertainty towards the tail end of 2022, but the markets are expecting both rises and falls to base rate this year. Lenders tend to pass base rate rises onto SVRs within a few months and a rise of 0.50% on the current average SVR of 6.84% would add approximately £1,536 onto total repayments over two years.
“The cost of living crisis presents a challenging situation for borrowers with an existing mortgage and those who are looking to get onto the property ladder. First-time buyers with a limited deposit may put their plans on hold until they can more comfortably afford to take out a mortgage. New buyers play a crucial role in keeping the market moving, but it would be understandable to see caution when affordable housing is in such short supply. Borrowers with an existing deal may struggle to make overpayments and be concerned about future affordability due to unpredictable house prices and interest rates. Seeking advice before entering any arrangement is wise, as the best deal for any borrower will depend on their individual circumstances.”
Adam Ruddle, chief investment officer at LV=:
“The Bank of England’s decision to raise interest rates by 0.5 percentage points is in line with our expectations. Though widely expected to fall, inflation remains at over five times the Bank of England’s target, squeezing the incomes of millions of people in Britain. The Bank has been clear that managing inflation down is its key responsibility – even if that means subdued economic growth.
“While an increased rate helps tackle inflation it hinders economic growth and increases mortgage payments. Though inflation is beginning to fall, core inflation (that is, inflation excluding food and energy) is looking quite stubborn and the Bank have shown they want to take the bulk of the bitter economic medicine now rather than gently over the first half of the year. We believe the Bank will increase rates perhaps once more in March before pausing. I anticipate that they will peak at 4.5% this year.”
Andrew Gething, managing director of MorganAsh:
“With a clear mandate to reduce inflation it is no surprise to see the half-point hike announced today. There are solid indications that inflationary pressures are reducing, so there is a fair chance this increase will not need to be repeated.
“While it is painful for mortgage borrowers, we need to put in perspective the very low rates the mortgage market has enjoyed were unsustainable, and hoping they will return to such low rates is unrealistic.”
“With every successive rate rise, consumer vulnerability becomes an even bigger factor. The heavy burden of higher mortgage payments will stretch borrowers and force many to make difficult compromises, particularly when it comes to protection and insurance. With Consumer Duty just months away, the FCA has rightly identified a significant shortcoming in preparation by firms to measure vulnerability and monitor customer outcomes.
“As more consumers potentially display vulnerable characteristics, firms must place greater emphasis on their monitoring and data strategy. Not only is it essential in protecting customers and ensuring fair value but delivering good outcomes as required by Consumer Duty. All the above have been identified as key areas of focus for firms by the FCA.
“Recent bad press on the treatment of vulnerable consumers by the energy sector should be taken as a warning that pressure may well come from the consumer as well as the regulator.”
Kellie Steed, mortgage expert at Uswitch.com:
“After a full year of base rate rises, mortgage rates rose significantly across the board in 2022, however, the impact of the February 2nd increase is not necessarily expected to correlate with further rises across all rates.
“Tracker rate mortgages directly follow the base rate, and customers can therefore expect their mortgage interest rate to go up in line with the increase, by 0.5%. This is the equivalent of around £57 extra on the average monthly repayment for a £200,000 loan.
“Fixed-rate mortgage interest rates, on the other hand, have been in gradual decline for the past couple of months and this further increase to the base rate is not expected to impact this trend.
“Mortgage lenders tend to adjust their rates ahead of time to account for worst-case-scenario increases. The knock-on impact of base rate increases on most mortgage rates is, therefore, not as formulaic as seen in tracker-rates.
“If you’re on a standard variable rate (SVR), or discount rate set on your lender’s SVR, it’s less obvious whether this additional hike in the base rate will directly affect rates, although the average SVR at the current time mirror’s the base rate in being at its highest rate since 2008, 6.64%.”
Paul Wilson, chief investment officer at Channel Capital:
“A decade of record-low interest rates was not economically healthy or sustainable. But moving from all-time lows to a 15-year high of 4% in the space of 14 months has inevitably created challenges for lenders and borrowers alike.
“For lenders, it has hindered their efforts to secure senior debt from banks and institutions, many of which are reticent to deploy capital in the current climate of changing rates. The shortage in senior debt – which is essential, given it makes up the majority of a lenders’ funding stack – is, in turn, preventing or limiting lenders from issuing loans to clients. It becomes a vicious circle.
“At times like these, other sources of capital become more important. Mezzanine finance is a prime example, and we’re seeing more lenders look to this option when building their funding stack. By securing mezzanine finance from more nimble, ambitious, or proactive investors, lenders are then able to provide much-needed confidence to the senior debt providers. As such, more must be done to champion the role of mezzanine finance in the current climate; it is keeping the lending industry active and is likely to remain in high demand over the months and years to come.”
Brian Murphy, head of lending at Mortgage Advice Bureau:
“The end could be in sight, but not yet in touching distance. The decision today is of course expected, but not welcomed, as the Bank of England has chosen to continue their war on inflation with more rate rises, pushing the base rate to a 15-year high. This will inevitably leave many homeowners feeling stuck and worried by the prospect of their mortgage costs getting even higher.
“However, there could be a glimmer of hope on the horizon, with forecasts predicting a fall in rates later this year. We urge anyone who is concerned about their ability to pay their mortgage or to afford a new mortgage to speak to an adviser, who can help you navigate what may feel like an overwhelming situation. As rising bills continue to squeeze household budgets, it would be good practice to shop around for the best deals – including considering the switch to a tracker mortgage. It’s hard to feel positive at the moment, but all predictions suggest we are close to reaching the peak of the hikes – and all eyes will be on the next decision to determine whether interest rates have any further distance to climb.”
Tara Flynn, personal finance expert of financial comparison site Choosewisely.co.uk:
“Families are facing numerous challenges, and an interest rate hike is the last thing they need. The Bank of England argues that increasing interest rates helps control inflation but appears indifferent to the impact this will have on millions of homeowners whose mortgages are due for renewal, credit card holders, and those seeking loans.
“It’s widely acknowledged that the cost-of-living crisis has led to a significant increase in credit card usage, as families have been compelled to use them to cover escalating expenses such as energy bills, fuel, and food. However, they are now being penalised for something they would prefer not to do; it’s absolutely heartbreaking.”
Jatin Ondhia, CEO of Shojin:
“After ten consecutive rate hikes, there is a worrying sense of déjà vue, as the Bank of England’s heavy-handed approach shows no signs of abating. Undoubtedly, this move will present further challenges ahead, just days after the IMF downgraded its growth forecast for the UK’s economy.
“As investors continue to navigate testing market conditions, the reduction of real returns through higher inflation represents a significant threat to both fixed income investments as well as equities. Against these headwinds, investors must keep a cool head and consider the tools at their disposal to make their money work harder.
“I would expect the diversification of investment portfolios to remain a prominent trend in 2023, as inflation remains in double figures but rates rise. It is also likely that tax-efficient investments will gain increasing traction in the months ahead, with investors trying to manage returns in the most effective ways possible.”
Damien Druce, commercial director, Black & White:
“To assist consumers and businesses cope with these uncertain times, and it being the first review after Christmas and a cold snap, where bills will have undoubtedly increased and then some, I expected the BoE to resist this move.
“I don’t believe there is much more scope for the MPC to impose many more base rate increases and hope that we are approaching a new and sensible ceiling, so that households and businesses can plan for the future.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“The effects of the Bank of England’s base rate decision have seemingly been discounted by many homebuyers and sellers who are on fixed-rate deals which don’t expire for some time yet. But don’t get me wrong, those directly impacted by the change will know all about it in their repayments.
“The impact on house prices has been a reminder that negotiations can be tough if transactions are to happen as prospects are not exactly rosy.
“While another base-rate rise is unwelcome, more attention is being focused on two- and five-year fixed-rate mortgages, which thankfully have started to fall. This will bring much-needed stability and confidence to take on debt, despite continuing worries about the economy.”
Tomer Aboody, director of property lender MT Finance:
“Borrowers will be hoping that this latest rate rise will be one of the last to come in quick succession.
“With Rishi Sunak’s government pushing to halve inflation by the end of the year, it is not unreasonable to question whether there could be an even bigger stimulus for the property market in the form of a possible reduction in interest rates from next year.
“One thing’s for sure, consumers are already preparing for more tough times ahead while they wait for some relief from aggressive rate rises.”
Stuart Wilson, chair of Air Club:
“The Bank’s decision today will have surprised only those who have avoided reading a paper for the past year and is a necessary move with inflation remaining above 10%. But just because something is expected doesn’t mean it’s not noteworthy. Today marks the tenth consecutive rate increase from by the Bank of England.
“Other experts can go into detail comparing rates during each of the past ten years against the others, but the fact is that many homeowners are already struggling. Over-55s who have fewer options to boost their income and may battle to remortgage given how tight affordability criteria are right now are likely to be particularly impacted by today’s increase.
“While there is no magic bullet and rates in the equity release market have also risen following the mini-Budget’s impact on bond markets, these products do offer some older borrowers a viable option. Refinancing and then choosing to make interest as well as capital repayments can help to ease the pressure on older homeowners while at the same time managing the roll-up of interest.
“The focus needs to be on educating the wider financial services community and homeowners as to the options offered by later life lending products rather than hoping inflation and interest rates will fall.”
Scott Clay, head of introducers at Together:
“The minor 0.5% rate rise suggests policymakers are finally easing off the pedal to relieve inflationary pressures. Borrowers may feel initially skittish about future mortgage repayment costs, but for the most part, due to previous lender price considerations the impact to actual prices should be minimal.
“Given the fact the UK economy is expected to suffer more than the Russian economy this year, which is currently dealing with heavy sanctions and war, any surprise decision from Bank of England is likely to be a positive one for borrowers.
“2-year swap rates are currently below 4% with 5-year money at 3.5% giving some signal as to where markets expect rates to go this year.”
“With that said, the cost-of-living crisis remains front of mind for all homes across the UK and for some, there will be difficult times ahead. We anticipate more would-be home buyers may experience short or acute payment issues in the short term. For anyone in this situation, it is always advisable to seek the support of a specialist lender who are in the best position to help.”
Kevin Brown, savings specialist at Scottish Friendly:
“The MPC’s decision today gives us little in the way of real surprises and meets expectations from the market.
“The big question is where we go from here. Inflation in the UK is looking particularly sticky compared to international peers. Interest rates have risen like a rocket in a matter of months and may fall like a feather as inflation lingers on in 2023.
“This is compounded by high core inflation, particularly problematic for households, and which leads to the possibility that rates will stay higher for longer. With a cost-of-living crisis forcing households to become more dependent on credit for everyday spending, this will only compound the issue.
“As ever, banks and building societies are likely to raise borrowing costs quicker than the interest rates offered on savings, so the negatives of today’s decision will outweigh the positives. Nonetheless, savers and borrowers should both shop around and plan decisions in advance to get the best rates possible.
“The convergence between inflation and interest rates bodes well for savers, but possibly the best way to protect their money from losing value as price rises remain high is to consider investing for the long term, whenever possible.”
Vikki Jefferies, proposition director at PRIMIS:
“The forward planning from lenders and brokers across the mortgage market means that, while today’s decision will see the cost of borrowing increase for borrowers on tracker mortgages across the UK, many fixed mortgage rates should remain somewhat insulated from any significant impact.
“We have already had a positive start to 2023 in terms of rates reductions, and we are optimistic about what this means for borrowers over the next year.
However, as the cost-of-living crisis and energy crisis continue to bite, affordability will remain an issue for many homebuyers and brokers should be prepared to address these challenges.
“Most importantly, brokers should make sure they dedicate the appropriate time and resources to fully understanding their customer’s financial situation, so they can help them find the most suitable deal, both in the short and long term.”
John Phillips, national operations director at Just Mortgages:
“This tenth interest rate rise in a row which takes the bank base rate to 4% is certainly headline-grabbing but the mortgage outlook is considerably rosier than three months ago with re-priced products and prudent lending still available across all loan types and sectors.
“Six months ago the media was awash with predictions of a housing market crash but this never transpired and house price predictions are now for a static or slight fall during 2023. What this should offer homeowners is reassurance that even if their monthly payments are higher, the value of the asset i.e. their home will remain robust.
“The UK has a massive network of affordable and accessible mortgage advice and we need to make it second nature that borrowers take advantage of this resource. The message we should be screaming from the rooftops is for existing and aspiring borrowers to seek professional independent advice to secure the best deal. Brokers need to be more proactive than ever in promoting themselves and building a relationship with a new generation of borrowers in this higher interest rate environment.”
Steve Seal, CEO, Bluestone Mortgages:
“While there are signs that inflation has reached its peak, today’s decision will still be a tough pill for consumers and borrowers to swallow. Interest rates have now risen for the tenth consecutive month, pushing mortgage repayments higher yet again. As a result, affordability challenges will likely remain.
“For those who are struggling in the current situation, remember that hope is not lost and there’s help at hand. Not only is there a wide range of support available for customers struggling with their financial situation, but we’re likely to see rates come back down later this year. Now more than ever, specialist lenders have a vital role to play in supporting the customers who do not fit the ‘vanilla’ category. It’s the duty of this industry and at the heart of what we do to ensure these customers can still reach their homeownership dreams.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“This tenth successive hike in the base rate means homeowners on variable and tracker mortgages will yet again see their incomes stretched as the cost of servicing their existing loans becomes more expensive.
“Meanwhile, anyone planning to buy a new home will be keeping a close eye on the mortgage market over the next few days.
“Rates have been falling steadily in recent weeks, but it remains to be seen whether lenders had already factored another base rate increase into those products.
“If they have, and rates remain stable or even continue to fall, this could be a real boon for the property market and will inject another all-important burst of energy from buyers.
“Borrowers want to feel confident that while interest rates will be higher than they were before last autumn, they will be low enough to help them afford their next home.
“In home-buyers’ favour is the fact that lenders are competing for business, and using lower rates as a way to entice new customers.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“Today’s increase was not wholly unexpected, even though two members would have preferred the rate to remain at 3.5%. Although global inflation remains high the latest figures in the UK show that perhaps inflation is starting to level out. So, it will be interesting to see whether the bank uses the next meeting to increase the base rate again to the predicted peak of 4.5%, in line with previous announcements from the governor.
“For the housing market it will be the headlines of an ‘increase in the base rate’ that most would-be house buyers, and those remortgaging, that will see first. Whether or not mortgage lenders are automatically raising their rates it may be enough to cause a further knock in confidence, which could stall the market further. We have heard that more house-hunters have registered interest in January, so demand is picking up. It just depends on how people perceive another hike in the base rate and how badly they need to move. No doubt lenders will be jockeying for business, which may see the recent spate of fixed rate reductions continue.”
Adrian Anderson, director of property finance specialists, Anderson Harris:
“The Bank of England had to “go big” again today, raising interest rates to their highest level in over 14 years to 4% in the battle against inflation.
“Inflation stood at 10.4% in December 2022, just below its 41-year peak in October 2022. The cost-of-living crisis continues and 2023 will most likely see households face some of the most challenging conditions for living standards on record.
“Today’s rise to 4% was universally expected as inflation is not yet under control. The question now is will the Bank of England base rate stay at this level or rise further, peaking at around 4.25% or 4.50%? And then how long it will have to stay at these levels to ensure inflation is under control? It’s a fine balancing act.
“It’s almost impossible to remember that the Bank of England base rate stood at just 0.1% in December 2021. Some 1.8 million mortgage holders will see their fixed rate deal finish in 2023 and are yet to feel the impact of rising interest rates. These homeowners, along with the estimated 2 million on variable rate deals are likely to have a mortgage shock and face a significant increase in their payments at the same time as most of their other outgoings have increased markedly.
“Only a very small number of mortgage holders are currently behind on their mortgage payments but there is risk this number could rise as homeowners move onto much higher mortgage rates. Homeowners are in a very different place to the ‘old normal’ of the last 14 years.”
