The monetary policy committee of the Bank of England raised interest rates from 0.5% to 0.75% on Thursday in a move to combat the escalating cost of living in the UK. This is the third interest rate rise in four months and takes rates to their highest level since the beginning of the pandemic.
This rise was anticipated by most, with some mortgage lenders pulling their long-term mortgage deals in preparation for the increase in interest rates, according to Moneyfacts. Despite this, it has been suggested that demand within the housing market will remain strong. Nathan Emerson, CEO of Propertymark, said:
“The housing market has emerged from the pandemic in a strong enough position to absorb much of the impact of the economic shocks that have been predicted for some time now. Our latest Housing Market Report data shows continued high demand from buyers with the number of sales being agreed at over asking price three times more than in a pre-pandemic market.
It is important to remember it remains relatively cheap to borrow money, and we expect that to continue to feed the appetite that there is for property as a good long-term investment.”
Iain McKenzie, CEO of The Guild of Property Professionals, commented that the rise “will come as unwelcome news to millions of people on tracker mortgages or variable rates” whose costs will increase”, adding that “those on fixed-rate mortgages are safe for now”. On whether demand would remain strong within the market, he said:
“All the latest figures continue to show that house prices are climbing across the UK, with strong demand in many areas driving this upward trend. Prices have increased 20% since the start of the pandemic and the industry has been expecting a readjustment for a while.
It remains to be seen whether another interest rate rise will dampen the demand for properties and deter first-time buyers worried about mortgage payments.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, shared this sentiment, though warned that rates for new fixed-rate mortgages are “creeping up”:
“Our mortgages are protected to a large extent by the fact that most of us are on fixed rate deals. New borrowers have also been sheltered from the full impact of the rate rise, because the high street banks are still sitting on such a cushion of cash that they can afford to offer exceptionally cheap deals. However, new rates are starting to creep up, and in February, Moneyfacts put the average two-year deal at 2.44% – up from 2.38% in January but down from a year earlier.
Meanwhile, anyone on a tracker or standard variable rate has been hit hard. The average SVR jumped 0.15 percentage points in March to an eye-watering 4.61%. It means that it is well worth considering fixing your rate sooner rather than later if it makes sense for your circumstances.”
There are also suggestions that rates will continue to rise over the coming months. Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said “the limited move means inflation will slip away and slide upwards again”, adding that “the Bank is now predicting inflation rises to 8% in April”.
All of this is better news for retirees planning to use an annuity, says Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown. She said:
“Interest rate increases push up the gilt yields used to determine annuity rates, so we could get another bump in rates.
We are not expecting a rush for annuities though. Current annuity incomes are still pretty low and it will probably take a significant further uplift to tempt retirees, especially if they think further interest rate increases could be on the cards.”
