Brokers have their say
The Bank of England increased the base rate for the 13th consecutive time on June, 22, pushing interest rates up 0.5%, from 4.5% to 5%.
Many experts were expecting the central bank to increase the base rate following the latest inflation data from the Office for National Statistics.
Mortgage Introducer has spoken with several brokers to discover their views on the move, and what the latest base rate rise means for the mortgage market.
Ticking time bomb
Amit Patel (pictured), adviser at Trinity Finance, said the ticking time bomb has finally exploded with devastating consequences for borrowers, renters and business owners.
“By hiking the base rate to the highest level for 15 years, the Bank of England will now effectively force the UK into a recession,” he said.
Patel believes the journey ahead looks bleak for the country, and said it will get much worse before it gets better.
“Real pay for the majority of people in the country has been flat and, due to the rising cost-of-living, their disposable income has significantly reduced,” Patel added.
Fundamentally, Patel said there are three reasons why inflation is stubbornly high: Brexit, profiteering by banks, energy companies and in the food supply chain, and the Bank of England. The interest rate hikes so far have failed to curb inflation, and are causing real hardship for the citizens of the UK - as such, Patel said the Bank of England must rethink its strategy.
Paul Welch, chief executive at Large Mortgage Loans, said, as a consequence of the rising base rate, many people are trapped in a situation that is not of their own making and are fearful of rising mortgage payments. He believes that while the stories of house price crashes are way off the mark, there will be a house price correction after many years of cheap borrowing.
“If it becomes unaffordable in the short term, then speak to an adviser about your options and work out a plan to keep hold of your home; I think the pain will be relatively short-lived, six to nine months perhaps, so it is a case of just trying to get through this phase,” Welch said.
Welch added that most lenders and advisers want to step up and support their customers by offering help in the form of mortgage payment holidays, or by extending the mortgage term; so he believes clients should not suffer in silence.
Glimmer of hope
John Choong, an equity analyst at Investing Reviews, said considering that two members voted to keep rates unchanged, there is a glimmer of hope that the Bank of England will not hike rates to the 6% the market is now expecting.
“This is because some members of the committee are acknowledging the lagged impact of rate hikes on the economy and mortgages,” he said.
Nonetheless, Choong said further movement will be heavily dependent on wage growth, and how quickly lower food and energy costs flow through to retail prices to cool inflation.
What impact do you expect for the Bank of England’s latest base rate hike to have on the mortgage market? Let us know in the comment section below.
