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The UK’s central bank has raised interest rates from 4% to 4.25% to curb inflation.
The Bank of England has decided to raise interest rates for the 11th time in a row after figures show that the cost of living has risen more than expected.
Inflation jumped to 10.4% in the year to February despite forecasts of a decline.
The rate hike comes amid lingering concerns about the global financial system after two US banks failed.
The recent rate hikes will make it more expensive to pay off mortgages, other loans, and credit cards, but people should get more out of their savings.
Industry reaction:
Marcus Dixon, JLL’s Director of UK Housing Research, said: “Rates have risen tenfold since their last meetings in December and February 2021, making further rate hikes at the MPC meetings almost a foregone conclusion. Views were mixed: On the one hand, uncertainty over the collapse of Silicon Valley Bank and UBS’s takeover of Credit Suisse, as well as more encouraging news about the inflation outlook from OBR, threatened the Commission’s continuation. But yesterday’s double-digit inflation signaled a rise in the CPI in February and raised the odds of a rate hike.
“Even with today’s 25 basis point rise, we expect this to signal a top-out (or close to top-out) for rates. , which means home prices will fall 6% nationwide in 2023 and the market will begin to pick up annual growth in the second half of 2024.”
North London real estate agent Jeremy Leaf commented: “There is a crisis between change and no change. This recent rise in interest rates is a huge disappointment for the housing market as banks hoped they would trust their own data and leave them alone.
“After a very quiet fourth quarter of 2022, activity is slowly starting to pick up and the housing market is critical to the overall prosperity of the economy. “Given the considerations, it’s important to keep inflation as low as possible. Overall, with real incomes falling, the economy still feels pretty weak, so I wish there had been no rate hikes for at least a month.” rice field.
Winkworth Chief Executive Officer Dominic Agasse said: “Now nearing the peak of the tightening cycle and strong lender appetite remaining, mortgages now appear to be calming at around 4% over the long term.At this level, a strong job market and economy Improving sentiment is expected to lead to a milder year than forecast, with prices falling by 5% on average, affordability feeding differently across sectors, and price-performance disparities driven by location expands, but we see a soft landing.”
Richard Donnell, Executive Director of Research at Zoopla, commented: “We do not believe that higher base interest rates will make much of a difference to the outlook for the housing market. Demand for homes is down compared to last year, although the pace of sales has slowed (down 20%). Consensus is still being reached People are still wanting to move Households are re-planning in an environment of rising borrowing costs Talks of a big price adjustment to home prices have been exaggerated and pushing home prices down If set wisely, it is likely to attract interest, provided some negotiation takes place on the final price.
Propertymark CEO Nathan Emerson said: “With interest rates rising again, of course we expect to see challenges within the market. That means finding an extra £300, but for many people entering the real estate market, budgets need to be rethought and affordability adjusted.
“Previous increases have evened out supply and demand levels and put us back in a more sensible market. It is expected to continue to offset levels and unattainable housing price increases.”
Jackson-Stops Chairman Nick Leeming commented: “Following an unexpected rise in inflation in February, the latest decisive move by the Bank of England in a series of measures to bring inflation down by the end of the year should have long-term effects that will calm markets. However, this could be a fly in housing salve, as mortgage borrowers are watching intently to understand the impact this will have on the current deal.
“In the medium term, similar to the ever-evolving economic situation, if inflation is well contained, the broader lending market could paint a better picture for borrowers and further stabilization could be on the horizon.
“Homeownership continues to be at the top of the list for savers looking to beat inflation and put their money to better use. Cash savings rates currently available cannot beat inflation. A comparison of January 2022 to January 2023 sees average UK house prices rise by £17,000, showing just how reliable brick-and-mortar long-term capital growth can be. Even with an average loan payment of £733, the homeowner would have made an average profit of £8,156.”
Lucien Cook, head of housing research at Savills, said: “An estimated 70% of mortgage holders have remained completely unaffected by the recent rise in interest rates. The 1.36 million mortgage holders using
“Today’s 0.25% interest rate hike will likely mean future buyers remain cautious about their moves later in the year, further tilting the market towards cash and stock-rich buyers.
“The impact on buyers’ budgets will weigh on home prices, especially at the lower end of the housing ladder where debt is the primary source of funding.
“Given that mortgage regulation has been entrenched for more than five years since it was introduced, we estimate that about 70% of mortgage holders will remain completely insulated from the recent rise in interest rates. The pressure will be felt by an estimated 1.65 million borrowers on variable-rate mortgages and another 1.36 million borrowers whose fixed-rate contracts expire in 2023.
“The average borrower whose fixed rate contract on a 25-year mortgage ends will increase by £3,199 annually to 13,641 in 2023 unless the term of the mortgage can be extended or the interest rate can be temporarily lowered. About 1.18 million more borrowers could face higher mortgage costs next year as fixed-rate deals come to an end, but banks’ base rates Assuming you’re at or very close to peaking, the impact will be less severe.
“The number of borrowers who remain insulated by fixed rates and the extent to which borrower affordability is rigorously stress-tested by lenders suggests that the shock to homeowner finances could be completely out of control. These factors limit the risk of a large outflow of stocks to the market.”
Simon Gammon, Managing Partner of Knight Frank Finance, said:Last month, at least two major lenders increased mortgage rates on various products. Today’s decision by the Bank of England means they are unlikely to be the last. Swap rates, the instrument banks use to price mortgages, have risen since Wednesday’s surge in inflation. In the absence of meaningful data to suggest that price gains are easing more rapidly, the trend in mortgage rates is clear.
“This is not to say we expect a spike in mortgage rates like we have seen after the mini-budget. Mortgage rate easing across the US is likely to bottom out and those looking to fix should lock in deals. Most could be renegotiated if terms move the other way .”
MAB Lending Officer Brian Murphy commented: “What first appeared four years ago as a welcome bonus for mortgage borrowers has become a gift that keeps on giving. However, many tracker products have become more attractive due to the decline in Bank Basic Rates (BBR).The Bank of England’s continued interest rate of 0.5% means that the standard floating rate is within 2% of the BBR. It also means that those pegged to continue to benefit from unexpectedly low interest rates.
“As this is not a one-off and there is no sign of an imminent increase in the BBR, we are looking to borrow SVR products from lenders such as Nationwide and Cheltenham & Gloucester and expect a ‘honeymoon period’ before interest rates hit 0.5%. can. Extend for the foreseeable future. ”
Tom Bill, Head of UK Housing Research at Knight Frank, said: “There has been upward, downward and sideways pressure on mortgage rates in recent weeks as lenders digest spikes in inflation, sluggish sales volumes and heightened caution in the swap market after the Silicon Valley Bank collapse. Fortunately, the volatility in borrowing costs has become negligible compared to the post-mini-budget period, and the picture is stable.Today’s decisions are unlikely to weaken demand in the housing market. Low. The housing market has proven stronger than expected so far this year against an improved economic backdrop. We expect prices to fall by a few percentage points in 2023 as supply increases from the pandemic slowdown.”
Anderson Harris Director Adrian Anderson said: “Mortgage holders who had hoped the Bank of England would put rate hikes on hold were hit yesterday when inflation surged to 10.4% in February 2023.
“Today’s rate hike to 4.25% is in line with the Bank of England’s plans to fight inflation, but it doesn’t mean gains, it means more pain for already squeezed mortgage holders. .
“This is especially difficult for homeowners who have opted for variable rate mortgages in the short term in the hope that inflation will fall and they can opt for lower long term fixed rates than are currently available.”
Wayhome co-founder and CEO Nigel Purves commented: “We have already seen that rising interest rates have created uncertainty in the mortgage sector, but it is first-time domestic buyers who have been hit hardest in this regard.
“Not only are they facing the daunting task of saving money for their ever-increasing housing costs, but the monthly cost of paying off their mortgages is rising, while the number of high-value loans is also increasing. Decreasing.
“It’s a bleak outlook, to say the least, and will get even bleaker following today’s decisions.”
Rightmove mortgage expert Matt Smith added: “This has been an extraordinary six weeks, with base rate increases starting to look almost certain and quickly appearing unlikely. It has changed again, which has increased the bank interest rate to 4.25%.
“In this uncertain time, lenders have largely kept mortgage rates on hold pending the outcome of three important events: the spring budget, the UK inflation report and today’s base rate decision. This means that current mortgage rates have already priced in March’s rate hike, so we don’t expect mortgage rates to rise after today’s decision.
“The fact that interest rate rises are lower than previous rises, along with long-term indications that inflation is likely to fall sharply again this year, should give lenders confidence to begin easing rates. Lenders will wait to see how the market reacts to the bank’s rate hike announcement before re-pricing the deal.”
Bank of England poised to raise interest rates today amid surprise surge in inflation