"Lenders were probably already pricing in a 25 basis point move, but the repricing of home loans looks likely now to be more dramatic and protracted."
The Bank of England's Monetary Policy Committee increased Bank Rate by 0.5% to 5.00% earlier today, higher than some industry experts had predicted.
We spoke to several mortgage brokers and other professionals working in the mortgage industry to discuss the impact on mortgage rates, whether more rate increases are to come, and how brokers can best support borrowers coming off a fixed rate.
Many raised concerns about how borrowers on SVRs or coming to the end of a fixed rate deal would cope with the continuing rise in mortgage rates.
Ross Boyd, founder and CEO of Dashly, said: “Consider this: in 2007, when the average house price was £189,000, a 5.75% interest rate meant £680 monthly interest. Today, with an average mortgage property value of £290,000, the same interest rate translates to a staggering £1,100 in monthly interest alone. Continuing on this trajectory will inevitably lead the UK property market towards an impending disaster.
“The remortgage crunch has already driven up the average mortgage payment by £1,300 annually, and we’ve only just begun. With a multitude of 2% fixed-rate mortgages set to expire this year, borrowers face the harsh reality of remortgaging to 5% rates or risk being subjected to a punishing 7.7% Standard Variable Rate. Urgent action is needed to avert a potential catastrophe in the UK property market.”
Brian Murphy, head of lending at Mortgage Advice Bureau, commented: “Those on variable rates will be used to monthly increases by now, but for the 116,000 households who are due to remortgage from significantly cheaper rates to current offers above 6% for a two-year fix, it will be of huge concern that there is little sign of things easing.
“The past month has seen some lenders withdraw their deals entirely for several days and many others reprice significantly due to volatility in the swap rate market, which has been partially triggered by higher-than-expected inflation and expectations of further BoE interest rate rises. This would have left many borrowers worried about the availability of new products due to increasing degrees of short notice withdrawal of mortgage rates."
Gary Smith, Partner in Financial Planning at leading UK wealth manager Evelyn Partners, said: “Expect more mortgage market mayhem after this big bazooka rate hike. Lenders were probably already pricing in a 25 basis point move, but the repricing of home loans looks likely now to be more dramatic and protracted.
“With the benchmark interest rate undergoing a step-change to a level not seen since September 2008, the coming weeks are likely to see a procession of raised loan rates – and a succession of eye-watering estimates of how much monthly and annual loan payments will increase as borrowers come off their cheap fixed deals.
“There are some tactics borrowers can use to keep their monthly mortgage payments down, like taking out a longer-term loan like a 30 or 35-year product, or asking to switch part of their loan to interest-only. But they should go in with their eyes open and recognise that there is an element of kicking he can down the road with these options – costs will overall be higher and the loan must be paid off at some point."
Adrian Anderson, director of property finance specialists, Anderson Harris, added: “Today’s news that the Bank of England has raised interest rates once again to 5% spells more mortgage misery for millions of homeowners.
"There have been some 4 million first time buyers since 2009; a whole generation of homeowners have only ever seen ultra-low mortgage rates and for many, today’s rate rise will force a period of serious lifestyle readjustment.
“42% of homeowners who purchased a property in 2021 took a two-year fixed rate when mortgage rates were historically at an all-time low. This is the group of homeowners who are most likely to be hit the hardest."
However, other experts were more optimistic about the future of the mortgage market, citing sustained demand for housing and mortgage lenders already pricing in the latest rate increase.
Nathan Emerson, chief executive of Propertymark, said: “It’s undisputed that homeowners and first steppers will be facing the consequences of rising interest rates as borrowing costs increase. However, with this comes a further shift towards more realistic and sustainable house prices down from the spike seen during the pandemic.
"Confidence from sellers is undeterred with our latest data showing a 70% increase in properties available for sale compared to April 2022 and in turn, this is providing buyers more room for negotiation as well as more choice.”
Adam Oldfield, chief revenue officer at Phoebus Software, commented: “Whether today’s base rate increase will immediately affect mortgage rates is unlikely after recent increases following the surge in swap rates. However, borrowers seeing the headline today will be fearing that another hike is inevitable. With 2-year fixes standing around six per cent the decision for those coming off fixed rates will be a difficult one. Do you fix at six or drift onto an SVR in the hope that at some point in the next two years rates come down? Not an easy decision, especially if as many believe the Bank hasn’t yet finished putting rates up.
“The fact that we have been living in an artificially low interest environment for so long means that, perhaps, some borrowers became complacent. Now the increase to their mortgage payments has come as a massive shock. Nonetheless, paying the mortgage is not optional and as such borrowers are going to need to adjust to this new environment, the new normal. Unfortunately, there will be some that simply can’t manage, for whatever reason. We are already seeing the rate at which arrears are rising increase and lenders are going to need to be prepared. It will be very interesting to see what comes out of the Chancellor’s summit tomorrow. Will there be increased pressure from the government for lender leniency?”
Jatin Ondhia, CEO of Shojin, added: “Interestingly, property values remain underpinned by a shortage of supply. In good locations and at the right price point for local markets, cash buyers are still out there, while mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions.
"The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates, which all borrowers have to get used to. For existing borrowers, the Chancellor has ruled out direct government assistance but is meeting with banks on Friday to find ways to soften the blow. Let’s hope they come up with something sensible otherwise we could see an increase in defaults which have so far been muted.”