Property market reaction to the Bank of England hiking the base rate to 3%

by Editor

The Bank of England (BoE) said the UK faces the longest recession in 100 years after raising interest rates to 3% in the highest single increase since 1989.

The Bank warned that a 0.75% interest rate increase, the eighth since last year, would not be enough to defeat double-digit inflation.

The UK economy has a “extremely tough future” as a summer slump is predicted to extend until mid-2024. However, mortgage holders were relieved when the central bank downplayed City predictions of a significant hike in borrowing costs to above 5%, reasoning that a two-year recession meant it would adopt a far less aggressive posture.

The BoE governor, Andrew Bailey, stated, “We can’t make guarantees about future interest rates, but based on where we are today, we think the bank rate will have to go up by less than currently valued in financial markets. These are major changes that affect individuals.”

The anticipated 300,000 consumers who must re-mortgage this month will find two-year and five-year fixed rates at levels not seen since the 2008 financial crisis. Homebuyers with tracker or variable rate mortgages will feel the rate surge immediately. After Kwasi Kwarteng’s poorly regarded mini-budget pushed fixed-rate mortgages skyrocketing above 6%, the Bank stated they had already fallen. Bailey said he hoped home loan providers would keep cutting prices for homebuyers, indicating the Bank’s worry about the housing market.

Bailey responded, “If we do not act strongly now it will be worse later.”

The Bank anticipates inflation, which reached 10.1% in September, to peak at 11% by 2022 and then decline “probably rather strongly” from the middle of 2023. Higher energy prices and a tight labor market caused the significant increase.

Property market reacts to historic base rate hike
Rightmove property expert Tim Bannister said: “The period of extraordinarily low interest rates seems to have ended.” Since a few weeks ago, mortgage rates have stabilized and fallen. While “like-for-like” mortgage prices have been rising, mortgage brokers and lenders may assist clients in evaluating their cost-management choices and determining if they can afford to move.

Mortgages for Business head Jeni Browne said: “The 0.75% base rate hike is the greatest in 33 years.” Despite the difficulty, inflation must be fought.

Landlords and property investors should remember that SWAP rates affect mortgage pricing for market-funded lenders, which is positive for fixed-rate products. The money markets have approved of Rishi Sunak and Jeremy Hunt’s appointments and activities, which has caused SWAPS to relax. While the base rate rises, we predict fixed rates to fall modestly over the next few weeks.

Iain McKenzie, CEO of the Guild of Property Professionals, said that the Bank of England has to find a way to fight inflation without putting the UK into a serious recession. House price growth will likely normalize in the coming months as borrowing costs rise. However, doomsayers are overestimating the cooling impact.

Existing homeowners were stress-tested to ensure they could handle rising interest rates. Though unpleasant, most will adjust by saving elsewhere. Our study suggests that 1.5 million fixed-rate mortgages will expire in 2022, so check with your lender if you’re unclear about your mortgage type.

Moneybox MD of Homebuying Cecilia Mourain said of the base rate rise: “A anticipated knock-on impact is downward pressure on property prices — higher supply and decreased demand. Buyers can bid less if they borrow less. As fixed rate packages expire, homeowners may feel compelled to downsize to lower their mortgage payments.

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