Experts urge borrowers on SVR or tracker deals to seek brokers' guidance
Mortgage experts have reacted to the largest hike in interest rates in more than 30 years.
The Bank of England raised the base rate by 0.75 percentage points from 2.25% to 3% in a bid to tame double-digit inflation, which currently stands at 10.1%.
Although the move had been widely expected, the announcement came with a dire warning that the country was also facing a two-year long recession.
Mortgage experts gave their impressions within minutes of the announcement as they attempted to gauge the impact of the rate hike on the housing market.
Brian Murphy, head of lending at Mortgage Advice Bureau, gave a damning assessment of the BoE’s decision, predicting that borrowers could start to default on their mortgage repayments as a result.
“Those who have secured a new fixed rate deal in the last couple of months will be breathing a sigh of relief, but for anyone on a SVR or tracker mortgage this news could be a real source of concern,” he said.
“Expectations are that the industry will see an upwards trend of defaults on mortgage payments in the coming months, and so we urge anyone fearing that they may struggle with mortgage payments to go straight to their mortgage provider for guidance.”
He also took a swipe at the government, suggesting it should be more actively involved in lessening the burden on borrowers. “The onus to help shouldn’t exclusively fall on mortgage providers – as the autumn statement approaches, it shall be interesting to see what if any forms of support will be introduced by the government,” he commented.
Read more: Bank of England hikes interest rate again
Ben Bailey, chief customer officer at Even, gave an equally grim evaluation of the rate increase, saying it was “historic for all the wrong reasons”, adding that it “will only further exacerbate the financial pressures that many households are facing”.
He said: “The move may also impact the availability of low-deposit mortgages, which are essential for those wishing to step onto the property ladder. Anyone trying to buy their first home right now should consider speaking with a specialist broker that can connect them with bespoke mortgages for first-time buyers, including those that can help them boost their deposit.”
Stuart Law, CEO of the Assetz Group of property lending and investment companies, said the interest rate rise would signal the “final death knell” of the buy-to-let era, both as a viable sector for investors and as a model that contributed to the national housing mix.
“Even the most committed landlords will now be wondering how they will be able to fund their investments as buy-to-let mortgage costs soar on top of recent tax rises,” he suggested.
“We must build more homes. It is the only way to tackle affordability and undersupply in the rental and for sale markets. Finding new ways for private investors to successfully inject capital into the market is vital at a time when we look set for massive cuts in public spending. But we can’t ignore the other crucial aspect of this which is supply side reform. That means unrooting the planning system to promote more development.”
However, Moubin Faizullah Khan, CEO of GetGround, a buy-to-let company formation platform, said the relative impact on landlords, investors and would be homebuyers would be less dramatic.
He said: “The market turmoil that followed September's mini-budget caused swap rates to increase more than needed. This means that today's extraordinary rate rise is already priced into many lenders' credit risk plans. Logically therefore we should expect fixed rate mortgages - the bread and butter of the buy-to-let sector - to stay priced where they are for now.
“If predictions for what will go into Jeremy Hunt's 17 November Budget are accurate, we can reasonably predict that swap rates will fall over the rest of Q4, bringing down with them the price of fixed rate mortgages that lenders feel comfortable to offer in the first few weeks of the new year."
John Phillips, national operations director at Just Mortgages, reportedly one of the largest mortgage brokerages in the UK, also said that as many lenders had already priced in a 3% hike in rates it would negate any impact on current mortgage rates.
However, he added: “This is a very challenging time for consumers, especially for those that need to move rather than want. While the changes in government have helped calm rates and brought more products and lenders back to market, those needing to upgrade, downsize, relocate or remortgage are still facing a real price shock and rise in household outgoings.”
Kevin Brown, savings specialist at Scottish Friendly, said the large rate increase would mean that debt “will get more expensive more quickly”, warning that households already under pressure by the cost-of-living crisis would be buffeted even further by tax hikes later in the month.
“Higher interest rates are unfortunately the ‘medicine’ to cure high inflation,” he declared. “This financial pressure is a feature, not a fault of the process. However, the medicine is hard to swallow and will be painful for many – but it is needed to get inflation down. In the meantime, savers should think carefully about their options as rates are still largely net negative in inflationary terms.”
Ben Woolman, director at Woolbro Group, commented: “The Prime Minister has a real fight on his hands if he’s still determined to turn ‘Generation Rent’ into ‘Generation Buy’.
“First-time buyers have been dealt blow after blow since the government introduced the stamp duty holiday at the beginning of the pandemic which, effectively, only benefitted existing homeowners and second-steppers.
“And despite helping hundreds of thousands of first-time buyers onto the ladder since it was introduced, the Help-to-Buy scheme is also coming to an end and the government seemingly has no intention of replacing it.”
Read more: Market outlook uncertain, warns chief economist
Woolman also argued for the government to ease planning restrictions in a bid to boost home building. “If the Prime Minister wants to restore the Conservative’s reputation as the ‘party of ownership’, he must act urgently to tackle Britain’s housing crisis. An obvious first step would be to commit to long-overdue reform of Britain’s planning system, which has long served as the main obstacle to the country delivering the new homes it needs. This will make it far easier and more efficient for developers to build properties where they are needed by depoliticising decision-making within planning authorities.”
Vikki Jefferies, proposition director at PRIMIS Mortgage Network, said the BoE’s decision had “raised the stakes for prospective buyers” and “driven home the need for consumers to engage with a professional mortgage adviser”.
Richard Pike, Phoebus Software chief sales and marketing officer, noted that the BoE’s 75 bps increase was part of a global trend as it mirrored what the Federal Reserve had done in the US a day earlier.
However, he questioned whether it was the best method to rein in inflation.
“Bringing inflation under control is difficult at the best of times, but when the price of oil and gas continues to rise and the war in Ukraine affects the movement of goods around the world, you have to ask if it is the only weapon in the Bank’s arsenal.
“Without knowing what will come out of the autumn statement the MPC are, to a degree, shooting in the dark and borrowers are taking the brunt of their decisions. Swap rates are dropping and lenders may have already factored in this latest rise in the base rate. However, this is not going to be the last increase and borrowers will certainly see their mortgage interest rates increasing over the next few months. The housing market is, I think, heading into a period of stagnation as we wait to see whether the current strategy has any effect on our rising inflation.”
