The Bank of England has continued to announce increases to its Base Rate, with its 12th consecutive rise in May, pushing interest rates to 4.5%, which is the highest they’ve been for 14 years.
Interest rates are raised to combat high levels of inflation, but the current rate of inflation is still way above the Bank’s target of 2%.
This successive increase is not good news and will do little to stimulate the property market, with buyers offering substantially under asking price due to a squeeze on their own finances. on properties. If sellers wish to sell, they will have to accept the current reality of what their home will fetch in the market. There is also a real worry for those coming off a fixed term having previously secured a very favourable rate. The sharp rise they will experience in the monthly cost of their mortgage may have a real impact on their finances, and many may wonder how they are going to manage.
Rightmoves mortgage expert, Matt Smith comments: “This has been an unusual few months, which started off with a Base Rate rise looking almost certain, to then quickly looking unlikely. And then, within weeks the outlook changed again following the publication of the inflationary figures. This has culminated in the Bank raising rates to a high 4.5%.”
So how will interest rate rises impact mortgage rates?
Simply put, changes to the Bank’s Base Rate matter because it could impact how much interest you’ll pay on loans, including mortgages. If you’re on a fixed-rate deal, your monthly payments won’t change. However, if you’re on a variable or tracker mortgage, your payments will almost certainly go up.
Earlier in the year, the markets were predicting that the Base Rate might need to rise to around 4.5% in the summer, before starting to fall. And in March, mortgage rates had started to level out, after falling from the highs they reached after September’s mini-budget announcement. But since going up, mortgage rates could rise considerably for many, and lending will be repricing their deals. Based on today’s rates, 5-year-fixed mortgages are likely to continue to be priced lower than their 2-year equivalent rate products.
Marc von Grundherr, director of London estate agency Benham and Reeves, suggested the hike shows the importance of buyers borrowing within their means.
Commenting “A further hike to the cost of borrowing will do little to enthuse the nation’s aspirational homeowners, who are currently battling with an astronomical cost of living while attempting to save enough to climb the ladder. The latest hike should serve as a warning for those who are considering borrowing beyond their means, or for those contemplating the re-introduction of the 100% mortgage.
“In the current climate, it simply isn’t worth the risk and you’re far better off waiting and accumulating a more stable nest egg with which to place a mortgage deposit.”
Nathan Emerson, chief executive of Propertymark, said homeowners on fixed rates won’t yet be affected by the changes and suggested pricing has been factored in for new borrowers looking to buy.
But he added: “For those on tracker mortgages, like many landlords in the buy-to-let market, this means another rise in outgoings. In the rental sector, a rise in the cost of supplying a home will put further pressure on rents and may see some investors forced to exit the market altogether, further worsening the extreme supply and demand imbalance seen already.
“It is imperative that the UK Government urgently do more to support homebuyers and landlords with their rising costs, especially as interest rates look to remain high into the start of next year.”
