The mortgage market has welcomed the Bank of England decision to raise base rate today.
Experts said the 25bps rise, to 4%, was needed to cool inflation, and should not lead to a rise in fixed-rate mortgage pricing.
The Bank’s Monetary Policy Committee (MPC) voted by a majority of 8–1 to increase base rate by 25bps. One member voted to hike base rate to 4.25%.
The Bank said: “While the direct effects of higher energy prices are clear, and will continue to feed into firm and household energy bills, there remains limited evidence of knock-on effects on other prices and wages. However, the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate. Activity data in recent months have generally been stronger than expected, adding to the case for modestly tighter monetary policy.”
Ben Nichols, chief executive of RAW Capital Partners, said: “This was widely expected. Inflation is creeping ever higher, driven largely by energy prices and the conflict in the Middle East, and there is still some volatility in the bond market, so the Bank had to act. But there is no need to blow this base rate hike out of proportion; lenders priced this in many weeks ago, so today’s decision will not necessarily translate into any further upward movement in fixed-term rates.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said: “Today’s rate rise has been largely priced in already. Fixed-rate mortgages have been heading towards 6% for weeks, and mortgage approvals have dropped to their lowest level in almost three years.
“The real damage is psychological. Another rate rise tells people that borrowing is getting more expensive, not cheaper, and that makes them hesitate. The people hit hardest are those remortgaging and second-steppers trying to stretch to one more bedroom.”
Haydn Thomas, chief executive of Cornerstone Finance Group, said: “This is not a surprise, but a disappointing decision all the same. From a mortgage intermediary perspective it will have no impact as fixed rates are already coming down in many instances as most funders had already anticipated this rise and hedged accordingly.”
Frances Haque, chief economist at Santander UK, said: “For homeowners, the immediate impact of today’s increase will be felt most by those on tracker and variable-rate mortgages, with those coming off fixed-rate deals facing continued uncertainty over the coming months. We may see higher borrowing costs impacting affordability and with that, some slowdown in market activity, with last week’s Bank of England data already showing mortgage approvals easing in September.
“The key question is whether today’s decision is a precautionary move or the start of further increases from the MPC.”
