Super Straho The Bank of England’s Monetary Policy Committee (MPC) has announced a 0.25 percentage point increase in interest rates, bringing the benchmark rate to 5.25%. This marks the fourteenth consecutive rise in an effort to control stubbornly high inflation, which currently stands at 7.9% – four times higher than the Bank’s 2% target. As a result, millions of homeowners are set to face higher mortgage repayments, impacting the property market significantly.
[H]omeowners coming off fixed-rate deals and moving straight into a six percent mortgage are going to be unable to afford them, leading to an abundance of repossessions and forced sales which is not good news.
David Hannah, Chairman of Cornerstone Group International, expressed concerns over the impact of the rate hike on homeowners, stating, “Due to today’s decision from the Bank of England to raise interest rates to 5.25%, homeowners coming off fixed-rate deals and moving straight into a six percent mortgage are going to be unable to afford them, leading to an abundance of repossessions and forced sales which is not good news. Fundamentally, it’s going to shatter confidence in the market.”
The interest rate hike is expected to slow down property sales, as evidenced by Nationwide’s recent report indicating a 3.8% decline in property values in July – the biggest drop in 14 years. Moreover, prospective first-time buyers might find it challenging to enter the housing market due to unaffordable mortgage rates. Additionally, the rental market, already suffering from a lack of supply, will face further challenges, leading to increased rental prices and competition for rental properties.
As the property market faces increasing pressure, one in eight young people solely rely on family support to enter the housing market. However, rising interest rates may limit the financial assistance available from families, forcing potential homeowners to seek alternative solutions.
Today’s rate rise will deal yet another significant blow to mortgage holders, with millions already reporting up to a 60% increase in their monthly repayments.
Rudy Khaitan, Managing Partner of Senior Capital, highlights the growing appeal of equity release amidst rising costs. He says: “Today’s rate rise will deal yet another significant blow to mortgage holders, with millions already reporting up to a 60% increase in their monthly repayments. For those who are planning to help members of their family with financial assistance, but are increasingly limited by rising interest rates, equity release can serve as an essential mechanism that could unlock life-changing amounts of capital securely.”
James Richard Sproule, Chief Economist UK at Handelsbanken, focuses on the MPC’s decision to raise interest rates, stating, “The three-way split in voting indicates ongoing debates about the appropriate measures to tackle inflation. We now expect a further interest rate rise of 25bp in September to 5.5%, which we are forecasting will be the peak of this interest rate cycle.”
There is broad consensus that rising interest rates are exerting pressure on the UK property market, making mortgage payments unaffordable for many homeowners and hindering the aspirations of first-time buyers. The impact of these rate increases is also affecting house sales, leading to a decline in property values. Amidst these challenges, equity release is emerging as an attractive option for older homeowners to unlock their property wealth and support younger generations in the quest for homeownership. As the Bank of England continues its efforts to control inflation, the property market remains a critical area of concern, with homeowners seeking alternative solutions to navigate these turbulent times. The three-way split in voting within the MPC indicates that debates about the appropriate measures to tackle inflation are ongoing, and further rate hikes are anticipated in the coming months.
Author
