Industry reacts to BoE hiking base rate to 0.25%

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 8-1 to increase the bank rate by 0.15 percentage points to 0.25%.

The announcement comes as the latest ONS statistics show that 12-month Consumer Prices Index (CPI) inflation rose to 5.1% in November 2021 — the highest 12-month CPI inflation rate since September 2011, when it stood at 5.2%.

The Bank of England’s decision was made in order to return CPI inflation sustainably to the 2% target.

The MPC will review developments, including emerging evidence on the implications for the economy with regard to the Omicron variant, as part of its forthcoming forecast round ahead of the February 2022 Monetary Policy Report.

Industry reacts to interest rate rise

While the finance sector believes the decision was imminent, many experts were startled by the timing of the announcement before Christmas.

“The rise in interest rates was expected, yet still surprising as the Bank of England tends not to move rates in December; however, with inflation hitting a 10-year high, it seems as though the Committee felt it was finally time to move,” said Mark Harris, chief executive at SPF Private Clients.

Mark Dyason, owner of Edinburgh Mortgage Advice, added: "The Bank of England delivered its own vaccine jab to the economy today to ward off infection from inflation. 

“The bank has shown its teeth, and more importantly, that it still has them. 

“The real question is how quickly can inflation be brought to heel, or will we need a booster jab to rates in early 2022? 

“This speculation could lead to further rate rises, but rates will still be very low compared to what has been offered historically.”

Nevertheless, industry experts feels the rate change will unlikely have any major impact on the market.

John Goodall, CEO at Landbay, commented: “A 15-basis point rise in base rate is not a big increase and won’t have that much effect on people’s lives. 

“Mortgage rates are still at very low levels — although some have risen more recently — and many borrowers are on fixed-rate mortgages, so they will see no difference to their monthly repayments, and the impact on savings rates will be minimal too.

“What this rise does signal is that rates have bottomed out and we are starting to see a gradual move upwards to what might be considered a more normal interest rate scenario. 

“A base rate of 0.1% has always been an unprecedented, historical low — even 0.25% can be described in the same way.

“We have seen swap rates rising recently and they provide an indication of what the market will be anticipating in the future. 

“Considering where swap rates are now, the market is expecting two to three more rises over the next year or so.”

John Phillips, national operations director at Just Mortgages, shared Jon’s view, adding that the competition between lenders will keep rates relatively low, which, in turn, is unlikely to curb the demand for houses.

Miranda Khadr, CEO and founder of Pitch 4 Finance, said that it was inevitable that the increasing rate of inflation would lead to a rise in the Bank base rate — it was just a question of when.

“In the commercial mortgage market, many rates are variable, so this will increase borrowers’ monthly payments. 

“Borrowers should also prepare for more rate rises during the year, maybe another two . . .  base rate could be sitting at 0.75% by the end of 2022.”

Kimberley Gates, head of corporate partnerships at Sirius Property Finance, stated: “Any increase in interest rates is always going to cause concern from homeowners who will understandably be worried about the implications it might have on their monthly mortgage payments. 

“However, it’s important to remember that, even with today’s increase, rates remain incredibly low and so there’s certainly no reason to run for the hills. 

“Stress testing will have ensured that any monthly cost increase is easily stomached by the nation’s homebuyers and many more will have also locked in fixed-rate terms, which they will continue to benefit from.

“While there will no doubt be some reaction by lenders in line with today’s increase, it’s unlikely to dampen our appetite for homeownership, and buyers will continue to benefit from some of the lowest rates seen in recent times.”

Lisa Martin, development director at TMA, commented: “There is now a great opportunity for brokers to support remortgaging borrowers in this new climate by helping them to find one of the great deals that are still available at this time. 

“For those with complex financial situations, seeking advice is also more important than ever, and brokers should act now to help their customers lock into appropriate, affordable products while they can.”

However, Karthik Srivats, co-founder of Ahauz, highlighted that this decision will impact one group in particular: first-time buyers.

“After years of rock bottom rates, the tide has now turned, and no group is going to suffer a greater squeeze on affordability than first-time buyers.

“Today’s announcement from the Bank of England comes at a time when young people already face a perfect storm of record house prices, soaring energy bills, and increased taxes.

“While some predict that higher interest rates could trigger a slide in house prices, that may well turn out to be wishful thinking.

“Equally likely is that we see property prices climb further as demand continues to outstrip supply; that means first-time buyers will end up stretched on all fronts.

“With speculation already rife that today’s hike may be the first of many, the current level of enquiries from borrowers looking for a long-term fixed deal could soon turn into a flood.

"We are already seeing demand for equity loans increase as borrowers look for new ways to increase their affordability and drive down overall borrowing costs."

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