SPF Private Clients chief executive Mark Harris says the Bank of England (BoE)’s base rate increase today could have been worse than 75 basis points if the “Liz Truss government prevailed”.

At midday, the BoE revealed it was increasing the interest rate to 3%, which marks the biggest since 1989 and the eighth time the bank has upped rates. 

Harris comments: “Swaps have eased by more than 100 basis points since the mini-Budget, so while 3% may not be the peak for base rate, we don’t believe it needs to, or can go, much higher.”

The MPC’s latest projections described “a very challenging outlook for the UK economy. It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term”.

The Office for National Statistics’ latest data shows that inflation increased from 9.9% in August back to 10.1% in September. 

The Bank of England says inflation is “projected to pick up to around 11% in 2022 Q4, lower than was expected in August, reflecting the impact of the energy price guarantee”.

After today’s announcement, BoE governor Andrew Bailey states: “From where we stand now, we think inflation will begin to fall back from the middle of next year, probably quite sharply.”

“To make sure that happens, bank rate might have to go up further over the coming months.”

“We can’t make promises about future interest rates. Based on where we stand today, we think bank rate will have to go up by less than currently priced in financial markets. And that’s important because, for instance, it means that the rates on new fixed-term mortgages should not need to rise as they have done.”

The BoE governor adds that today’s decision “should not lead to higher mortgage rates”.

“In fact, actually I think there is a downside to mortgage rates and that sense in terms of new fixed-rate mortgages as we adjust, as we must do, and as markets are doing from the experiences we’ve had in the last month or so.”

Commenting on the BoE’s decision, Bluestone Mortgages chief executive Steve Seal explains it “will be a tough pill to swallow for consumers and borrowers across the country as rates rise for the eighth consecutive month amid the ongoing cost-of-living crisis”. 

“We have already seen a dip in the number of mortgages in the past month as consumers across the country grapple with high-interest rates and the squeeze on their personal finances. Affordability challenges will no doubt continue to be the key issue for most people in the coming months.”

Meanwhile, SlothMove.com chief executive Jack Roberts says: “We can keep sending canaries down into the mine but we all know what the outcome is going to be — the UK housing market is headed for recession and a badly needed correction.”

He suggests the latest rate rise “is confirmation enough that the lending environment will no longer permit growth”. 

“The eventual winners will be the first-time buyers who have seen affordability ratios stretched to breaking point, destroying the dream of home ownership in many cases.”

“The BoE is in fire-fighting mode but this blaze of rampant inflation has burned well beyond containment. Consumers and businesses alike are being weighed down with eye-watering price hikes, particularly for energy. For many households, the idea of disposable income is now a nostalgic memory.”

“A housing market that has been climbing for months, seemingly blissfully unaware of the economic carnage around it, has probably already peaked and the next six months are going to feel very different. Mortgage rates are climbing too fast and consumer confidence is so low that even a measured decline in property prices may be unrealistic,” he adds. 

Meanwhile, Smart365 chief executive and founder Conor Murphy says although this is “undoubtedly a challenging time for the mortgage market, there is good reason to be optimistic about its outlook for the rest of the year”.

“Swap rates are beginning to settle, as are average rates across major fixed terms, according to Moneyfacts. Demand is also red hot, with buyers keen to press ahead with purchases despite the uncertainty.”

Phoebus Software chief sales and marketing officer Richard Pike states: “Without knowing what will come out of the autumn statement the MPC are, to a degree, shooting in the dark and borrowers are taking the brunt of their decisions.

“Swap rates are dropping and lenders may have already factored in this latest rise in the base rate. However, this is not going to be the last increase and borrowers will certainly see their mortgage interest rates increasing over the next few months.”

“The housing market is, I think, heading into a period of stagnation as we wait to see whether the current strategy has any effect on our rising inflation.”

Magni director Ashley Thomas rounds off the reaction on a further positive note: “As absurd as it sounds, you might find that more mortgage rates will reduce as the base rate has not increased as high as some feared.”

“Clearly, the appointment of Rishi Sunak as prime minister has had a significant and positive impact on the mortgage market and therefore homeowners.”