The Bank of England has today increased the base rate to 3.5%. The Monetary Policy Committee (MPC) voted 6-3 in favour of the increase.
This marks not only the ninth consecutive hike by the central bank, but also sees the rate continue to reach its highest level in over 14 years.
This hike follows the Bank’s decision to raise the base rate by 0.75% to 3% in early November – the biggest single hike recorded since 1989.
Spurred on by fears of an incoming recession, the decision aims to combat current economic turmoil, exacerbated by the cost-of-living crisis, the Truss Government’s calamitous ‘mini-budget’, as well as the ongoing conflict in Ukraine.
The rise also comes hot on the heels of yesterday’s decision by the US Federal Reserve to raise US interest rates to their highest level since 2007.
As for UK homeowners, the decision threatens to raise mortgage costs even more, putting the mortgage market under further pressure.
And with Christmas just weeks away, millions of households could be left feeling the financial squeeze this festive season.
Reaction:
Vikki Jefferies, proposition director at PRIMIS:
“Today’s rate rise is perhaps unsurprising given inflation continues to rise.
“With the Bank of England’s financial stability report revealing that approximately a third of mortgage holders are expected to face monthly repayment increases of over £100 by the end of next year, support for homeowners, and in turn brokers, will be ever important.
“However, some borrowers can take comfort in the fact that markets have largely anticipated, and priced-in rate rises already – in fact, we’ve seen an increasing trend of lenders reducing the rates on fixed mortgages.
“As such, PRIMIS will continue to support its brokers to navigate the changing product landscape through its Virtual Experts page and Help Desk.”
Iain Crawford, CEO of Alliance Fund:
“The latest inflation figures suggest that the Bank of England’s aggressive tactics are starting to yield results, with the level of inflation falling marginally between October and November.
“With this in mind, some may feel that a further festive hike ahead of the Christmas break is perhaps a tad Scrooge like. However, the economy is far from out of the woods just yet and so further temporary pain in return for longer term gain is the path we continue to walk.”
Marc von Grundherr, director of Benham and Reeves:
“There’s certainly no cold snap on the cards where interest rates are concerned with yet another substantial increase pushing the base rate to a 14 year high.
“This will be as welcomed by homeowners as the proverbial lump of coal on Christmas morning, with those on variable rate products now facing yet another immediate increase in their monthly mortgage payments.
“With many households struggling to heat their homes in these arctic conditions, this will be the last thing they need in the run up to Christmas.”
James Forrester, managing director of Barrows and Forrester:
“A ninth consecutive increase in interest rates will do little to boost a weary property market that is already showing signs of wear and tear due to the higher cost of borrowing, with buyer demand falling and house prices now following suit.
“While a Christmas interest rate increase is as desirable as a pair of socks from your aunty, the silver lining to today’s latest hike is that this should hopefully be the peak, with less chance of a further increase on the cards for 2023.
“Should this be the case, the New Year should bring a far more settled outlook for the UK property market, as we adjust to a new normal following a turbulent few months.”
Chris Hodgkinson, managing director of House Buyer Bureau:
“The Bank of England has chosen to pile on the financial pressure currently felt by many households for the benefit of the greater good.
“Unfortunately, the short-term consequence of this decision will be thousands stretched even thinner due to the increased cost of their mortgage, with many more homebuyers choosing to sit tight and put off their purchase until 2023, at the very least.
“This will mean more sales falling through and a further reduction in market activity, which is sure to bring a further decline in house prices.
“As a result, we can expect the downward trends that have already emerged in recent months to continue well into the new year.”
Bradley Post, CEO of RIFT Tax Refunds:
“How Jeremy Hunt stole Christmas. Households across the nation are already facing the toughest Christmas in some time, with the cost-of-living crisis putting extreme pressure on the ability to heat their homes, let alone stomach the additional financial strain that festive season brings.
“High levels of inflation have already pushed the cost of our Christmas dinner up by almost 20% since last year alone and we’re yet to see any meaningful reduction in these higher costs despite nine successive interest rate increases.
“With many of us also utilising overdrafts, loans and credit cards to ensure the spirit of Christmas is maintained for our loved ones, higher interest rates will mean a higher cost when borrowing.”
Andrew Gething, managing director of MorganAsh:
“Today’s decision by the MPC confirmed what many in financial services expected and had in fact already priced into fixed rates.
“It also hints that last month’s efforts to front-load rates with an aggressive rise of 0.75% may have been the exception rather than the new rule, especially as the base rate is predicted to peak below expectations.
“Recent indications that inflation increase is slowing is encouraging as we should see a drop in inflation quite quickly and hence release pressure to increase rates.
“Nonetheless, this further increase takes rates to their highest point in 14 years, once again driving up the cost of borrowing for stretched consumers.
“It also puts additional pressure on those with tracker and SVR mortgages.
“It’s situations like this where the new Consumer Duty regulation has been introduced to protect the most vulnerable.
“As the Bank of England takes difficult measures to bring inflation down, providers, brokers and advisers must identify those customers with vulnerable characteristics who will be most susceptible to harm.
“This is especially true with changing affordability, harsher criteria and tougher stress tests.
“Implementing a consistent method to assess vulnerability must become a priority for financial services firms, especially as more consumers potentially fall into this category.
“Not only is it essential in protecting customers and delivering good outcomes but meeting the requirements of Consumer Duty.”
Matt Bartle, director of products at Leeds Building Society:
“Although the majority of borrowers in the UK are on fixed rate deals, today’s announcement from the Bank of England is further bad news for some homeowners.
“Here at Leeds, we remain committed to supporting all our existing borrowers in offering them product transfer alternatives to SVR, provided they are up to date with their repayments.
“In addition, we continue to seek ways in which we can support any borrowers who may be facing financial difficulties through a range of forbearance options, depending on their individual circumstances.
“Although we may see some potential buyers temporarily holding back on entering the housing market until economic conditions stabilise, we expect their desire to get on the housing ladder to remain.
“This will continue to underpin demand for housing.
“Despite the current worsening economic outlook, the UK housing market has previously proven itself to be resilient and adaptable to rapidly evolving market conditions.
“It has survived economic shocks before and we are confident that it will do so again.”
Avinav Nigam, cofounder of IMMO:
“This increase in interest rates was expected given weak economic growth and high inflation. It was widely expected that the increase would be 50bps this time, versus the last jump of 75bps, which was the biggest in over 30 years.
“Once the recession fully arrives in coming months, the BoE will have to reduce interest rates to protect living conditions, as has been seen historically. So thankfully, this might be one of the last major rates increases.
“Rising interest rates have two major consequences for the property market. Firstly, there is an immediate increase in the cost of mortgages for the circa 2 million borrowers on variable rate mortgages. Secondly, there is the longer-term influence on demand and supply, since both acquiring and building new properties becomes more costly.
“Both impacts have the same consequence: more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock.
“As monthly finance costs increase for borrowers on variable rates for circa 10 per cent of the UK’s housing, there could be an opportunity for some investors to buy housing to live in, or as investment.
“The people that are looking to buy or remortgage will however find their mortgages expensive, but will still need a place to call home, and many might shift to the rental market.
“As borrowing costs increase, alongside the rise in labour and material prices, new construction also becomes much more expensive. New building projects are being put on pause, curtailing future supply.
“Again, the result is that the shortage in supply of new housing gets worse. This also increases the demand for rental housing.
“We see many of our institutional investor partners mentioning that as interest rates rise, investing in and improving rental housing makes even more sense: both commercially and socially.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“While 3.5 per cent may not be the peak for base rate, we don’t believe it needs to, or can go, much higher.
“Fixed rates are influenced by future base rate movements and therefore not directly linked to what is decided this week. Indeed, the pricing of fixed-rate mortgages, which soared after the mini-Budget, continues to drift slowly down, with five-year fixes breaching the 4.5 per cent barrier this week and expected to drop below 4 per cent in the new year. Come 2023, we could see 5-year fixes priced below base rate.
“Those on base-rate trackers will find their mortgage rate increase by 50 basis points and monthly payments will go up accordingly.
“For example, a borrower with a £200,000 repayment mortgage with a 25-year term and a pay rate of 3 per cent will see that rise to 3.5 per cent, meaning their monthly payments will rise from £948 to £1,001.
“With a variable-rate deal, the link between the lender’s variable rate and base rate moves are less transparent. The lender may decide to pass on none, some, all or even more than the base rate rise.
“If you’re looking to secure a property but believe fixed rates will continue to fall, you could consider a variable/tracker rate product with no early repayment charges, moving onto a fixed product when the rates are more palatable.
“Borrowers who are worried about paying their mortgage should get in touch with their lender. It may be possible to extend the term of the mortgage, change to interest-only or part interest-only/ part repayment.
“There are implications in making these adjustments but borrowers could do this on a short-term basis and when the opportunity arises, move back to full repayment, making overpayments to get back on course.”
Richard Pike, chief sales and marketing officer at Phoebus Software:
“Another rate rise from the Bank of England today was not unexpected.
“However, global interest rates are rising, so it’s a strategy that is widely believed to be the best way to curb inflation.
“There were question marks though, with many asking whether the speed at which rates are being increased may cause further problems for the economy.
“Nevertheless, we saw the first signs this week with inflation falling very slightly, that the plan may be starting to work.
“Although mortgage rates have been coming down we are now seeing some high street banks increasing their rates.
“Those on interest only or with deals coming to an end will be looking into 2023 and wondering how much their new mortgages are going to be costing them.
“Advisers and lenders will be looking closely at their books to not only assess where the opportunities lie, but where the vulnerabilities may be.
“This will be made that much easier with the right systems in place and a clear plan of action should things change quickly.”
Nicky Stevenson, managing director at Fine & Country:
“Rate-setters have begun to slow the pace of monetary tightening after data released earlier in the week suggested inflation may already have peaked.
“While price growth may finally be trending downwards, further interest rate hikes are still widely anticipated in the New Year, meaning home buyers will continue to see affordability stretched.
“A seasonal slowdown was expected, however, it seems amplified as many have pressed the pause button in their property searches.
“Buyers may gamble that borrowing costs may start to drift downwards again once the threat of inflation has been nullified.
“In the meantime, homeowners on variable and tracker mortgages continue to see their disposable incomes shrink as the cost of servicing their existing loans becomes more expensive.
“Those coming to the end of fixed deals will see an immediate spike in loan costs as they try to secure a new deal.”
Paul McGerrigan, CEO of fintech broker Loan.co.uk:
“The juggling act continues. The Government has made no secret that its number one overriding priority is to get inflation under control, and it appears to be willing to risk low output and a sluggish property market in the short term to do it.
“This move puts further pressure on those households which didn’t have the foresight (or luck) to lock into a longer-term fixed rate mortgage product in the sub two per cent days.
“This feels incredibly harsh during the festive period, but clearly the Monetary Policy Committee is trying to dampen over-spending during the Christmas period for those households who could still afford it. A gamble, but one they feel it’s worth taking.
“With inflation markers dropping and the numbers always lagging, its vital the MPC doesn’t overshoot the runway with Bank Rates and cause long term damage that’s harder to undo.
“The role of the adviser continues to be fundamental to help borrowers make the right short-, and long-term decisions for their futures. When times are more uncertain expert advice is vital.”
Stuart Wilson, chairman of Air Club:
“While the 0.5% rise in the Bank of England base rate announced today will go some way to slowing rising inflation, it will not be popular with many borrowers – especially those who are coming to the end of their fixed rates and face huge payment hikes.
“Having hit a high of 11% in October, even with these measures, we are unlikely to see inflation returning to the Bank of England’s target of 2% until the end of 2023.
“However, interest rates are not quite as firmly attached at the hip to inflation rates as many presume and we are starting to see both the residential and later life lending markets settling into a more consistent pattern.
“There is no doubt that today’s announcement will have an impact, but it is unlikely to be as drastic as we’ve seen recently.
“Older homeowners who may have been particularly hard hit by the cost-of-living crisis will be looking to their advisers for support.
“Whether it is helping family to buy their first home or using accumulated housing equity to soften the impact of the cost-of-living crisis or even boosting disposable income by repaying an outstanding mortgage balance, advisers will be key to many finding the right options for their individual circumstances.”
Nick Chadbourne, CEO of LMS:
“Today’s interest rate decision from the Bank of England (3% to 3.5%) has seen the base rate climb further still, putting it at its highest level since the financial crisis 14 years ago.
“But there is still no need for mass panic – the rise has already been priced into the money markets so it shouldn’t impact new mortgage products.
“Homeowners need to bear this in mind and know that there are still options available to help them find products and rates most suited to their needs.
“What we do expect is for this to affect SVRs.
“The remortgage market has slowed in recent weeks as the difference between SVRs and new products is nominal, so borrowers are waiting to see if product rates drop further.
“They will indeed drop, so this is to be expected. But, with SVRs now likely to increase again, this will no longer be the case, so the thought of unknowingly dropping onto such a rate will become unfavourable once more.
“This will inevitably drive increased market activity as we head into 2023.”
Jenny Holt, managing director for customer savings and investments at Standard Life:
“Today the Bank of England made the widely expected move of raising interest rates again, to 3.5%.
“While this is good news for savers, the increase in interest payments on cash savings is a long way off bridging the gap created by inflation, as the ONS yesterday announced inflation of 10.7% for November (11.1% Oct, 10.1% Sept).
“While the rate at which prices rose in November eased slightly, inflation remains at a near 40 year high.
“Our analysis shows that even with an interest rate of 3.5%, higher than what is currently available on almost all easy access savings accounts, savings of £10,000 will be reduced to around £8,680 in real terms after two years if inflation remains at 10%.
“These figures highlight the importance of ensuring your savings are working as hard as possible for you.
“If your savings are earning just 1% interest then the real value after two years is around £8,260, a difference of £420.
“For those able to take a longer-term view, putting cash into investments via an ISA or pension provides the potential for returns that can match- or even beat- inflation over the longer term as well as additional tax efficient benefits.”
Karl Wilkinson, CEO at Access Financial Services:
“I’m sure the focus will be on the fact that this is a ninth successive interest rate increase but, there are reasons to be positive.
“It is encouraging to see signs that inflation is easing with a drop to 10.7% in November.
“The UK housing market remains robust, and the attention must remain on helping customers achieve good outcomes in line with Consumer Duty.
“Borrowers will need to be cautious and seek professional advice from mortgage brokers to ensure they get the loan for their circumstances.
“Lenders also need to adopt sensible lending policies so that the danger of rises in repossessions can be averted.”
Simon McCulloch, chief commercial & growth officer at Smoove:
“Despite Brexit, a global pandemic and an ongoing cost-of-living crisis, the housing market has remained resilient. But how much more can the market endure?
“With a melting pot of mixed views on the market’s outlook and its trajectory in 2023, it is difficult to predict how home buyers and home movers will adapt to these challenges.
“The Bank of England is walking on a very fine tightrope while trying to curb inflation. Today’s interest rate increase will put even more constraints on the financial situations of both buyers and sellers in the property market, especially those on tracker mortgages or coming to the end of their fixed-rate term soon.
“With fixed-rate mortgage deals significantly less attractive than they were just a few months ago, many first-time buyers will be priced out of homes they thought they could afford or homeowners could be paying hundreds of pounds more each month.
“A lack of supply will also continue to underpin house prices and create an even bigger challenge for the Government to provide support and stability. It is becoming an increasingly challenging market for first-time buyers and homeowners alike.”
David Hollingworth, associate director at L&C:
“Homeowners already reeling from higher mortgage rates and the increasing cost of living will find little comfort in today’s base rate hike.
“However there has been a more positive shift in fixed rates which will at least help them lock down their mortgage payments at a more palatable level than in the immediate aftermath of the mini budget.
“As we return to a higher rate environment borrowers will increasingly face the dilemma of whether to fix or track and for how long.
“No one knows what will happen with interest rates, so advice will help to spell out the various options for borrowers.
“There’s likely to be more competition in the market which could help improve the range of mortgage options, but borrowers need to look not only at rate but also continue to factor in the fee package as a whole.
“Those that took a holding position or risk falling onto a standard variable rate should review, as the margin between SVR and fixed rates has already widened even before today’s rate announcement.”
John Phillips, national operations director at Just Mortgages:
“This was perhaps the least surprising rise in the past few months as it follows a half percent rise by both the US and some of our European friends such as the Swiss.
“Although the fact that this is the ninth increase in a row will grab the headlines, there is however good news as we see reports of inflation easing and the annual rate of price increases slows.
“And let’s not forget that house prices even in the midst of a cost of living and energy crisis continue to rise with figures from the Offices for National Statistics revealing that on an annual basis, average UK house prices were 12.6% higher than in October 2021, up from 9.9% in September.
“The underlying housing market is still strong and brokers should be working their socks off to expand their businesses by diversifying into new product areas and ensuring their clients’ protection needs are met.
“Every interest rate rise is an opportunity for brokers to open a dialogue with existing and new mortgage clients.”
Kevin Brown, savings specialist at Scottish Friendly:
“This is the ninth successive hike since December 2021 and there will be more to come next year.
“The increase to 3.5% comes as no surprise, but the speed at which interest rates have risen this year will have caught many households off guard.
“Millions of working adults have never experienced rates higher than 1% and getting to grips with the impact this has on their borrowing costs will be tough.
“Over the coming months, UK households will become more dependent on credit and those that are worst off are likely to suffer the most.
“By raising interest rates quickly, the Monetary Policy Committee is hoping to reduce inflationary pressures but in doing so it is putting many families under potentially greater financial pressure in the short-term.
“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.”
Justin Moy, managing director at EHF Mortgages:
“The increase to 3.5% was not unexpected and will have been reflected in overall mortgage pricing over the past few weeks.
“What is interesting is that some members of the MPC suggested not increasing rates this month.
“Is that a sign that we may be closer to the top than before?
“It’s also interesting to see HSBC forecast a lower Base Rate peak of 3.75%, much less than the 6%+ we were looking at in October.”
Gareth Davies, director at South Coast Mortgage Services:
“For borrowers, my overriding message is: ‘Don’t Panic’.
“Lenders have long since priced this rate rise, and also future base rate increases, into their current pricing models.
“Tracker products will naturally now creep up, but we haven’t seen any of the high street lenders re-pricing their fixed deals for the worse this week.
“This is usually common practice a day or two before a base rate announcement.
“The fact that a couple of members of the Monetary Policy Committee voted to keep rates at 3% suggests the base rate may not rise as much as was being forecast just a few weeks ago.”
Joshua Ellard, head of specialist finance & research at Finanze:
“The Bank of England’s latest rate increase will impact millions of households across the country, with SVRs and 2- and 5-year fixed rates all likely to increase.
“As rates increase, the amount people can borrow to purchase a property decreases, which will put downward pressure on house prices.
“While this decision may concern those borrowers who are on variable rate mortgages, the effect on fixed rate products may not be so drastic.
“Some lenders have already priced future rate increases into their current products.
“We are seeing current 5-year fixed mortgages between 5%-6%. Whilst we may see some increase, I do not expect the full burden to fall on borrowers.
“Those on a fixed rate mortgage that expires next year will see an average increase of £3,000 per annum.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Finance:
“This was so predictable, yet so disappointing. Millions of homeowners with mortgages who are already suffering with the cost of living will feel betrayed by the central bank for this.
“You don’t cure an illness with the same poison. Every economist recognises that the economy is in free fall and that inflation is widely imported and will fall out of the figures in May.
“The Bank of England does not need to heap more pain and misery on society with rate increases that won’t deal with the problem.
“The Government needs to step in here and widen the Bank of England’s mandate to allow it more flexibility and compassion in its decision-making.”
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services:
“With many commentators expecting a full 1% rise just a few weeks ago, 0.5% feels like we dodged a bullet.
“There is potential for further rises in 2023 depending on how inflation moves.
“If we see further reductions in inflation then it reduces the argument for additional rate increases, but if it stubbornly remains slow to come down, then the Bank will need to act again.
“The key thing to remember is that the economy is the proverbial oil tanker and the Bank knows that changes to interest rates can take 12-18 months to filter through and impact inflation figures.”
Imran Hussain, director at Harmony Financial Services:
“This was expected. Mortgage pricing has factored this rate rise in for the past few weeks.
“Those on variable rates or tracker mortgages will be immediately affected by an increase in costs alongside the massive increase in the cost of living for millions across the country.”
Paul Neal, mortgage & equity release specialist at Missing Element Mortgage Services:
“Thursday’s announcement was not really a shock, as it has been forecast for the past few months.
“Many lenders have already factored this rise into their current rates so hopefully there isn’t too drastic an effect on the mortgage market.”
Riz Malik, director at R3 Mortgages:
“The Bank of England has just copied and pasted what the US Federal Reserve has done.
“Inflation is already coming down and is predicted to fall even further. The only saving grace is the next meeting is not until February 2023, by which time the Grinch should have left Threadneedle Street.”
Craig Fish, founder & director at Lodestone Mortgages & Protection:
“Happy Christmas, not.
“This is a move that lacks any hint of Christmas spirit, and unfortunately is going to have little effect on consumer spending.
“I think the MPC committee is already in holiday mode and left all rational thinking under the Christmas tree.
“They should have waited until January to see the December figures on inflation, which is already reducing.”
Adrian Kidd, chartered wealth manager at EQ Financial Planning:
“What this decision means is that higher mortgage rates are here to stay but, on a more positive note, that saving rates will hopefully edge higher.
“But even then, inflation is so high that returns on cash are wiped out.
“We need to see inflation fall quicker than it is to change the mood music at Threadneedle Street.”
Lewis Shaw, owner and mortgage broker at Riverside Mortgages:
“We’ve never had a scenario where the Monetary Policy Committee continually raises the bank rate every meeting, yet here we are.
“Anyone on a base rate tracker will be written to by their current lender explaining the change in the monthly payments, which will take effect from next month.
“Anyone still on a fixed rate doesn’t need to worry as their fixed product currently protects them.
“Mortgage holders sat on standard variable rates could notice a change; however, that is down to each lender.
“The bad news is if the economy carries on as predicted in the November Monetary Policy Report projections, expect to see more base rate hikes to return inflation to 2%.
“There’s no way to dress it up: we’re in a bit of a pickle.”
Ashley Thomas, director at Magni Finance:
“No surprises here, this has been expected for the past month.
“Mortgage lenders are continuing to reduce rates, with the latest announcement sent from a lender this morning.”
Gindy Mathoon, founder & senior mortgage broker at Create Finance:
“Those coming off fixed rates and planning on staying on variable rates will feel the effects of this more as this doesn’t directly affect those on a fixed rate.
“Make sure you’re speaking to your mortgage broker/bank to review your mortgage deal if it is due for renewal in the next six months.”
Graham Cox, director at Self Employed Mortgage Hub:
“Interestingly, two of the nine Bank of England MPC members voted to leave interest rates unchanged at 3%.
“This indicates that potentially the base rate won’t rise much higher in 2023. There seems to be great uncertainty, even among the policymakers, about whether inflation has peaked or not.
“This is understandable given we don’t know how the Ukraine war or the public sector strikes are going to pan out.”
Adrian Anderson, director of property finance specialists at Anderson Harris:
“The Bank of England has met market expectations and followed the US Fed in raising base rate by 0.5% today, taking it now to 3.5%.
“Although this rise is smaller than the “mega hike” in November, this is still one of the biggest rate increases in the last decade.
“This rise, with gas prices increasing further due to the cold snap, is piling misery on millions of homeowners on variable rate mortgages and other forms of debt.
“This coupled with wide ranging tax rises to come in April 2023 puts huge pressure on households already struggling with rising prices.
“Although there is certainly no Christmas cheer from the Bank of England this year for borrowers, the fact that the size of the hike is down 0.25% on the previous increase, coupled with lower inflation figures released yesterday, means that we may be seeing the start of the end of the rate hike cycle with the market now pricing a terminal rate (top rate) for base at 4.5%, down from previous Armageddon predictions of 6-6.5% post mini-budget.
“Two members of the Monetary Policy Committee actually voted for rates to stay at 3% due to concerns about the state of the economy, with only one voting for 0.75%.
“With China u-turning on its zero COVID policy and the hope of a resolution for the war in Ukraine, the outlook for rates in 2023 looks mixed.
“There may be significant pressure on the Bank of England to reduce interest rates in order to try and stimulate growth in the second half of next year if inflation is under control and the UK does enter the longest recession in history.
“However with wages also rising in the private sector and a very tight labour market, inflation is predicted to remain well above 2% target for much of the next 12 months.”
