The property industry has reacted to the Bank of England’s decision today to raise the base interest rate from 0.5% to 0.75%.
The Monetary Policy Committee (MPC), responsible for setting bank rates, voted 8-1 today to increase the rate to 0.75%. Inflation currently stands at 5.5%, which the MPC said it expects inflation to go to 8% in the coming months and will “perhaps [be] even higher later this year.”
The committee wrote: “The committee judges that some further modest tightening in monetary policy may be appropriate in coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved.”
It added: “The economy had recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine was another such shock.”
Kitty Ussher, chief economist of the Institute of Directors, said: “Our most recent data from our members shows, however, that expectations of future inflation are still rising, so it may be that further corrective action will be needed in the months ahead, depending on how the UK economy is affected by fast-moving events elsewhere in the world.”
Lucian Cook, head of residential research at Savills, said “The fact that expectations of interest rate rises have been brought forward is likely to act as a drag on the size of the mortgage they are comfortable with or can secure from their lender. And we would expect that to contribute to a slowing of price growth over the course of the year.
“But for the moment, the imbalance between resilient demand and very low levels of stock available will cushion any impact. The Bank of England has also launched its consultation on the relaxation of mortgage regulation, which could further mitigate the impact of further interest rate rises in the future.
“The prospect of further rate rises over the course of the year also points to a continued stratification of the market, with activity levels remaining more robust in higher price bands where more affluent buyers have more housing equity to fall back on.”
Dominic Agace, chief executive of leading estate agents Winkworth, said: “With inflationary pressures having increased, this rise was 100 per cent priced into the money markets and we saw mortgage rates move up on five year fixes to allow for increased rate rise expectations.
“However it’s interesting to note you can still get a five year fixed rate at around 2.5%, guiding you through uncertainty as the global economy restarts post-pandemic and the dreadful war in Ukraine plays out. These are rates seen in March 2020 and represent near historic lows.
“Perhaps because of this, we have seen activity remain brisk, with applicants 80% ahead of the same week in 2019, even after this increase in borrowing costs of around one per cent last week. It is likely these rate rises will slow growth but with a buoyant labour market and shortage of supply, I would expect positive price growth to continue this year.”
Simon Gammon, managing partner of Knight Frank Finance, said: “The Bank of England’s third consecutive rate hike ensures that we’ll continue to see lenders withdraw and reprice products on a daily basis.
“Mortgage rates that borrowers see today are noticeably higher than six months ago and in six months we would expect to see a similar increase. Often the repricing we’re seeing is by as little as 0.1% or 0.2%, but if that’s happening every other week then you start to see a steady upward trend.
“Five-year fixed rates were as low as 0.91% late last year, but now you’d be lucky to get them under 2%. You haven’t missed the boat, these rates are still very low by historic standards, but we do expect the upward trajectory of mortgage rates to endure for the foreseeable future.”
Inflation May Overtake House Price Growth Soon – Warning
Rising inflation may soon overtake house price growth even in the most buoyant areas of the UK, a property market analysis is warning.
Home – a property website that analyses listings from major portals to create a monthly market snapshot – says house price growth across the UK as a whole shows little sign of slowing, despite a widespread belief that the market may have reached the top earlier this year.
Home says four English regions plus Wales show growth above the latest Retail Price Index inflation figure of 8.5 per cent – these are the East and West Midlands, East of England and the South West.
However, the other regions are already being the current level of inflation which means prices are falling in real terms. And Home warns that technically, it believes the all-England-and-Wales average house price growth level has actually been lower than inflation for five months now.
“It’s bad news for homeowners, especially those that own their property outright, and yet good news for the highly indebted who will see their debt eroded faster than the decline in real home price growth” the site states.
The website – edited by its director, Doug Shephard – says it is possible that house price rises may continue in parallel with inflation, but he cautions that “inflation has not yet officially peaked and hikes in fuel, metals and energy prices strongly suggest that we should expect double figures soon.”
For the moment, however, the market remains strong with Home noting: “The Typical Time on Market for unsold property in England and Wales has been driven down to a mere 70 days, a level not seen since the heady days of 2008 prior to the financial crisis.”
Shephard’s analysis shows a small increase in the number of homes on sale over the past four weeks but there remains a historically low supply of properties as demand indicates little sign of slowing.
And the site notes that the rate of take-up of properties by buyers is “astonishing” also, given what it believes to be the further interest rate hikes planned by the Bank of England – an announcement is expected today on a possible third rise in three months.