BoE hikes interest rate to 0.5% — industry reacts

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of five-four to increase bank rate by 0.25 percentage points to 0.5% to meet its 2% inflation target.

Those members in the minority preferred to increase the rate to 0.75%.

The announcement comes as the latest ONS Consumer Prices Index (CPI) rose to 5.4% in the 12 months to December 2021, up from 5.1% to November.

Inflation is expected to increase further in the coming months to around 6% in February and March, before peaking at over 7% in April.

Industry reacts to interest rate rise

The Bank of England’s decision to increase the rate was expected by industry experts, who claimed it was imminent.

Richard Pike, sales and marketing director at Phoebus Software, said: “The interest rate is no surprise to anyone, given the way that inflation is spiralling upwards. 

“However, the fact that the vote was so tight and those in the minority wanted to increase to 0.75% is telling for the next meeting.  

“If the Bank starts to raise rates in increments of 50 bps, it will not take long for the increase to have a marked effect on mortgage interest rates.

“The cost of living is rising and, with the price of gas and electricity set to increase further, this could be a tough year for many. 

“There will be some households that are already finding it hard and lenders should be looking forward and ensure they are communicating with their borrowers before situations get too bad.”

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, commented: “Given the rising costs of living, including the increase in the energy price cap that we have seen this morning, the bank rate rise will be unwelcome news for many. 

“[Those] on variable rate mortgages are likely to see their payments rise, but while this is the second rate rise in three months, the increase in their mortgage payments will be modest.”

Gavin Eustace, founding partner of Silbury Finance, added: “This is a necessary measure, given the threat of a prolonged period of high inflation. 

“At same time, this increase is going to put further pressure on the cost of living and ultimately, the bottom line of the consumer, potentially threatening a central pillar of the Levelling Up white paper to narrow spatial economic disparities.  

“Any near-term impact on national house prices will be negligible, given the supply-demand imbalance and the continued low cost of finance, which makes buying more attractive than renting. 

“However, it has the potential to rein in some of the growth we have seen in less affordable regions, especially London. 

“Ultimately, financing costs are significantly below historical levels, so purchasing a house continues to represent a good investment.”

Miranda Khadr, founder and CEO of Pitch 4 Finance, claimed the rate increase was an “irresponsible” decision, as more people are struggling to get by due to higher living costs.

“There are too many things happening at once for rates to go up now; if you add in tax hikes that are due soon and higher interest rates, people’s finances will suffer even more. 

“Not everyone is shielded by a fixed rate, especially those with commercial mortgages. 

“SME property developers have had to deal with rising costs of materials and labour, so adding in higher mortgage payments will be a blow to them. 

“It will lead to higher house prices and push more first-time buyers and upsizers out of the market.”

Wesley Davidson, founder of Fox Davidson, added: "This latest interest rate increase will pile on more misery for homeowners, or at least those who are on standard variable rates, as their mortgage costs increase. 

“Coupled with the proposed national insurance increase and forthcoming energy price rises, there will be a real squeeze on income during 2022."

Lucy Pendleton, property expert at James Pendleton, stated: “The direction of travel is clear and this will be bringing first-time buyers out in a cold sweat. 

“Affordability is already stretched thanks to low supply and valuations at record highs; now those trying to get on the ladder face increasing borrowing costs."

Douglas Grant, group CEO at Manx Financial Group, also highlighted that the change would hit UK SMEs hard, which have already been struggling due to the pandemic.

“The rate hike will disproportionately affect small businesses reliant on funding in their early stages of growth, exacerbating the UK SME debt burden and zombie status of weak businesses that continue to service their debt piles with many falling off a loan default cliff. 

“Its high time we address the question: how is this debt ever going to be paid back and is it in the interest of the UK economy to continue to support all SMEs? 

“We believe that it is imperative that this cycle is not compounded further and that, instead, we focus on supporting sectors and businesses that are resilient and nimble enough to adapt and therefore continue contributing to the economy’s growth. 

“Resilient SMEs would be well-advised to take stock of their current capital structure and, if appropriate, access fixed-term, fixed-rate loans to prevent additional exposure to an increasingly volatile lending market.”

Many experts have advised borrowers on variable rates to consult brokers and switch to a fixed rate to avoid higher costs.

Rhys Schofield, managing director at Peak Mortgages and Protection, said: "Anyone foolish enough to be sat on their bank's standard variable rate is likely to see the amount of money they've been chucking down the drain each month increase, which is especially silly with utility bills about to go through the roof. 

“My advice is that anyone whose mortgage deal has ended, or whose deal is due to end before the end of September, now needs to get on Google, search for mortgage brokers near them and pick up the phone to whoever has the best reviews."

Vikki Jefferies, proposition director at PRIMIS, added: “Brokers will now play an integral role in supporting those looking to remortgage or for a product transfer by helping them to find one of the great deals that are still available. 

“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.”  

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