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Property industry reacts to latest Bank of England interest rate hike

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Sat 07 May 2022

Property industry reacts to latest Bank of England interest rate hike

Interest rates have increased again for the fourth time in just a matter of months.

Mortgage holders, house hunters and savers will be affected by the Bank of England’s decision to increase the rate from 0.75% to 1%.

Those who have variable mortgage rates can expect to pay more, with UK Finance, the trade body for UK banks and mortgage lenders, estimating that a borrower with between £100,000 and £200,000 outstanding on their mortgage will pay between £20 and £40 more a month

Somewhat concerningly, the Bank of England warns that inflation could top 10% in the coming month, which would have an even greater impact on borrowers and savers, especially if interest rates rise further.

Property industry reaction:

Cory Askew, head of sales at Chestertons, commented: “Despite the previous interest rate rises this year, the number of buyers registering has only increased, most recently up 39% in April versus April 2021. With yet another rise, and the Bank of England indicating a target Base Rate of 1.5% by the middle of next year, the rate rises have only served to increase buyer motivation to secure their purchases quickly.”


Lucian Cook, head of residential research at Savills, said: “Despite some of the macro-economic pressures and today’s rate rise, it remains difficult to see the trigger for a meaningful house price correction, given the strength in the employment market and the fact interest rates remain low in a historical context. And given the mismatch between supply and demand we expect constrained stock to continue to drive further short-term price growth.

“This said the four successive rate rises and the rising cost of living are likely to bring more caution over coming months which will mean that rate of price growth slows progressively, potentially to low single digit figures in coming years.

“That will probably come as a relief would-be buyers, many of whom will feel they have been chasing the market over the past two years having seen intense competition for that stock which has been put to the market.”


Jason Tebb, CEO, OnTheMarket.com, commented: “This latest rate rise was anticipated by the money markets, given continued high inflation, but we don’t expect it to quash the considerable buyer and seller sentiment in the housing market.

“Even with another quarter-point rise, interest rates remain low. The housing market is more stable than the frenzy we saw last year, settling into a more manageable, steady, ‘new normal’ environment. The number of properties newly listed for sale is slowly increasing but is still not keeping pace with demand. New listings aren’t hanging around for long, with 63 per cent of properties Sold Subject to Contract (SSTC) within 30 days of first being advertised last month, according to our upcoming OnTheMarket Property Sentiment Index.

“Crucially, buyers remain confident about obtaining the mortgages they need and being able to afford them. Modest increments in interest rates, while unwelcome, are unlikely to result in a slamming on of the brakes as many buyers simply need to move.”


Iain McKenzie, CEO of The Guild of Property Professionals, said: “This latest interest rate rise will undoubtedly have homeowners and prospective buyers worrying about how it could impact them.

“Homeowners on tracker mortgages or with variable rates could face a further squeeze on their cost of living as their repayments increase.

“People on fixed-rate mortgages are currently unaffected, but they should keep an eye on when their deal is set to renew and make preparations in advance. About 1.5 million fixed-rate mortgages will end this year and next, and home-owners need to be ready to swoop on a new deal when the time comes to renewing.

“With the demand for properties holding strong across the country, the housing market is likely to ride out any short-term issues in the economy. Homeowners can be reassured that their property will continue to hold value.”


Nick Leeming, Chairman of Jackson-Stops, commented: “As inflationary pressures build, the news that the Bank of England has raised the base rate to 1% won’t come as a surprise to many homeowners who will have already factored this into their purchasing decisions, so I don’t see it having any immediate impact on the market. Although interest rates are now at their highest since the 2008 recession, we are still talking historic lows even if further rises are an inevitability to steady the UK economy.

“Most property buyers who are mid-purchase would have worked with a broker to secure a fixed rate deal, but if you are thinking of moving house, now is certainly the time to do it. We know there will be more rate rises to come, so finding a fixed deal from a recommend mortgage provider now will help mitigate any future hikes.

“We may see house price rises moderate in the coming months as a result, but with demand remaining as high as it is, I don’t see transactions dropping any time soon. We’ve all watched house prices rise at their fastest rate in 18 years and we look to a period of market stability in the longer term. Our branches have seen an increase in supply over the past week as properties hit the market ready for the summer, with a busy few months predicted as many rush to secure a mortgage.

“We are talking about property market cycles, from seasonal to economic ups and downs, where finding a pattern can help us feel more confident about the market ahead. Many have predicted that we have a few years left to reach the top of the market, but if you are selling now and also buying now, it all comes out in the wash as prices will be relative. Selling now while demand is strong could mean getting the best value for your home. But what you don’t want to do is be in a position where you are forced to sell in a market dip and then buy again as values recover. This is a fast moving market so my advice to buyers and sellers would be to act now and with due diligence.”


Tim Bannister, Rightmove’s director of property science, remarked: “It will take time for the rise in interest rates to feed through to the market, and despite further rises being a possibility this year, right now the data suggests this is not dampening the desire for people to move. Despite economic headwinds such as the rise in cost of living, buyer demand is still up around 60% from the more normal 2019 market.

“The home and where we live has become even more fundamental for people over the last couple of years, meaning that even with economic challenges, people are still prioritising this decision. We do anticipate affordability constraints and these economic headwinds such as rising interest rates to have more of an effect on the market later in the year.

“People will need to make decisions around what they can afford, which may mean some people need to lower the property price bracket they are aiming for, assess the mortgage products available in terms of duration and fixed-rate length, or raise a higher deposit in order to borrow less.”


Dominic Agace, chief executive of Winkworth, commented: “Despite the cost of living squeeze, we are seeing the market remain active with the number of applicants registering to buy a property at four per cent higher than the same week in 2021.

“So far, the market has shaken off the increased cost of borrowing and cost of living this year and I would expect a further 0.25 percentage point rise to be absorbed by current market enthusiasm. However, with further interest rate rises predicted for the year, we do expect this to affect demand later in the year, in particular amongst those requiring higher loan to value mortgages – typically first-time buyers.

“This could slow price growth in areas supported by these buyers, with lower disposable income margins hit by increased living costs and interest rates affecting affordability.  With a strong labour market and interest rates remaining historically low, we don’t expect this to lead to price falls.

“You can get a five-year mortgage fix for marginally less than a two year fixed mortgage and at the same rate as a ten year fix at around 2.5%. This is encouraging for the medium to long term outlook on interest rates and suggests the direction for rates is up this year but not by huge steps. Approvals for house purchases were little changed at 70,700 in March, from 71,000 in February.”


Nathan Emerson, CEO of Propertymark, said: “The rise is understandable from a wider economic point of view and considering where they have been they are still historically low.

“The concern around the recent rises are that they are coupled with high house prices. However, house prices have only risen at such a rate as buyers have been prepared to pay over the marketed price to secure a home above others.

“Whilst this competition is cooling down in some areas it is still present with large amounts of people wanting to move. We don’t anticipate this demand will be watered down but what those movers are able to pay will certainly start to be reconsidered over the coming months.”


Adrian Anderson, director of Anderson Harris, said: “With the Bank of England raising interest rates once again today to 1%, the highest level in 13 years, this is an attempt to tackle the crippling cost of living crisis gripping the UK.  Like many banks around the world the Bank of England is attempting to slow down inflation which reached a 30 year high of 7% in March.

With inflation so high many City economists are anticipating more increases. Three of the Bank of England Monetary Policy Committee members wanted a larger increase to 1.25% however, Governor Andrew Bailey recently noted that the Bank of England is walking a “narrow path” between growth and inflation. There are concerns that the soaring cost of living and higher borrowing costs due to the high inflation will damage consumer spending which may force the banks to reconsider future rate rises.

“Today’s Bank of England rate rise will not be welcomed by borrowers on variable rate mortgages as the cost of their mortgage will increase.

“The good news is that c.74% of UK homeowners have a fixed rate deal.  These borrowers will not be affected today however it’s likely that the fixed rates available in the future will be more expensive hence anybody with a fixed rate which is ending shortly should shop around as soon as possible.”