Base rate rise

Industry reacts to base rate rise

The Monetary Policy Committee (MPC) of the Bank of England has voted by a majority of 7-2 to increase the base interest rate from 0.25% to 0.5%.

The committee also voted to maintain the stock of sterling non-financial investment-grade corporate bond purchases at £10bn and to maintain the stock of UK government bond purchases at £435bn.

Both investments are financed by central bank reserves.

The MPC also predicted that inflation would increase above the 3% reported in October as a result of the depreciation in the value of sterling and recent increases in energy prices.

The committee’s central forecast expected GDP growth to be modest over the next few years.

Leading figures in the specialist finance industry – including the bridging, commercial and buy-to-let sectors – have voiced their opinions on the implications of the rate rise.

Last month, industry experts predicted that an interest rate rise would threatened to make borrowing more expensive and apply pressure to the bridging finance market.



Graham Toy, chief executive of the National Association of Commercial Finance Brokers (NACFB), has predicted that this rate rise would be the first of many.

“Some of the more insightful SMEs may well have factored an interest rate hike into their financial plans, but with interest rates having been so low for so long, many SMEs will have just assumed that the benign cost of borrowing will continue.

“If we are now heading into a period of small, slow and steady rate increases, this is likely to become an important factor in the future plans for many businesses.”  

Graham added that an increase in the interest rate is likely to impact lender’s affordability stress tests.

“This, in turn, is likely to impact on a business's ability to obtain finance,” he concluded.

Benson Hersch, CEO of the ASTL said: “Although the interest rate rise has been on the cards for some time, I’m glad that The Bank of England has finally woken up to the need to tackle this problem.

“Bridging lenders are unlikely to change their pricing structure, but will look carefully at how the long term market reacts.

“In addition, other factors, such as changes to stamp duty; have had a more significant impact on property prices than this rate rise is likely to have, so the market is likely to weather this storm.”

Eric Leenders, head of personal at UK Finance, said that with most mortgage holders and business customers paying a fixed rate, many will see no change until their current deal ends.

“Given that lenders offering variable rates assess a customer’s ability to pay at much higher interest rates, most should be able to cope with any increases as they filter down.”

Bridging finance

Paresh Raja, CEO of Market Financial Solutions (MFS), said the rate rise came as no surprise.

“Nevertheless, it is important to note that the rise in interest rates will place an added financial pressure on first-time buyers and buy-to-let investors needing to borrow money,” he added.

Mario Berti, CEO of specialist lender Octopus Property, agreed that the rate rise was expected, but admitted that its impact on the residential property market in the short term would be limited.

“What really matters is whether this signals the beginning of a meaningful increase in the cost of money and what impact that would have on consumer confidence over the longer term. 

“Given the high levels of personal debt, a swift increase in rates to pre-GFC levels would likely see the stagnant property market experience uncomfortable falls in transaction volumes and prices, but this is unlikely.”

Jonathan Sealey, CEO at Hope Capital, said: “Today’s announcement shows the pressure the Bank of England is under to curb inflation while Brexit negotiations continue to weigh heavy on the economy. 

“When it comes to alternative forms of lending, the rise in base rate is less of an issue if a lender is privately funded. 

“At a time when mortgage completion times are increasing – and the need for traditional bridging is growing – the disparity between mainstream rates and bridging rates from private lenders will be lower.”

Mark Posniak, managing director of Octane Capital, added: "Rates have simply gone back to a level that was an all-time low for the best part of a decade.

"What the Bank has effectively done is send up a flare, announcing to homeowners and businesses that the artificial rate environment we have been in for so long will – at some point – come to an end, especially with inflation as high as it is.

"There is without doubt some symbolism around this first increase for 10 years, but it is highly unlikely to cause the property market to implode.”

Mark suggested that although it may cause some prospective buyers to reconsider their options, it could also encourage others to act before rates potentially rise further.

“Arguably the real challenge comes not with the first rate rise we have now had, but the one after that.”

Buy-to-let market


John Goodall, CEO and founder of Landbay, warned that the small rise in rates could still “spook” landlords, particularly those embarking on long-term tenancies.

“In and of itself, a quarter of a percent is not going to have a huge impact on rental prices overnight, but symbolically it has the power to galvanise landlords to price in many of the tax and regulatory changes that have been building up for some time now.”

Andrew Turner, chief executive at Commercial Trust Limited, also believed that the change would not have an immediate impact for many fixed rate, buy-to-let landlords.

“Those on tracker or variable rates may see a change to their repayments, but it should be remembered that we are seeing these increases from an historic low base.

“Inevitably now that this has happened, we will see buy-to-let mortgage rates increase, but landlords should not panic.

“While rates will go up for the first time in a generation of homebuyers, we are unlikely to see any dramatic increases, with the likelihood that future rises will be small and incremental.”


Mark Dyason, managing director of Thistle Finance, thought it could be a while before there was another interest rate rise, but urged those with debt to review their exposure and consider their options.

"In the months ahead, we are likely to see more and more households consolidate the debts they have taken on, either through a remortgage or, if that is not appropriate or possible, a secured loan.

"Thankfully, as well as having competitive rates, many secured loans today have no early repayment charges, making them a genuine alternative for people looking to take control of their finances at a time of rising interest rates."


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