Property industry reacts to fifth consecutive rates increase

Prospective homebuyers will now be faced with higher borrowing costs when applying for a mortgage.

The Bank of England has raised interest rates to 1.25% - marking the fifth consecutive rise as fears of a recession loom. This latest rise represents the highest rate in 13 years as the BoE searches for ways to combat rising inflation and poor economic growth.

Prospective homebuyers across the UK will now be faced with higher borrowing costs when applying for a mortgage, and existing homeowners who are not on a fixed-rate deal will also see their disposable income slashed as monthly payments increase.

On a global scale, countries are struggling to keep up with economic turmoil stemming from the effects of a war, cost-of-living crisis, and resource shortages. Energy prices are also set to soar another 40% in October, while unemployment is likely to rise from 3.8% to 5.5%.

On top of that, disposable household income is predicted to fall by 1.75% in 2022, which means that British households are likely to suffer the second biggest squeeze on their incomes since 1964.

Group Chairman of Cornerstone Tax, David Hannah, says,  “The announcement of the rise in interest rates today - for the fifth time in a row - will place further strain on already struggling homeowners. Lenders have remained competitive with the mortgage products they are offering, but the rates are slowly increasing. Because of the rise, mortgage rates will go up over the next 12 months, which could reduce housing demand with buying power decreasing."

"I don't think it will cause property prices to dramatically fall though; I actually think there will still be significant demand in the market to keep house prices high. The latest rise will certainly force a few more people out of the realms of affordability, and whilst I accept the Bank of England need to control inflation, they also have a duty to protect people from being priced out of the market."
CEO of iPlace Global, the creators of Moveable, Simon Bath, says, "While we're seeing the biggest interest rate rise for 13 years, they have only risen by 0.25%. Actually, on a mortgage repayment, we're talking less than £100 – compared to the soaring energy and food costs, this will not be as prohibitively priced. Currently, 75% of all mortgage owners are on fixed rate mortgages, meaning that changes in interest rates won't affect any of these."

"First-time buyers can also start with a fixed rate; if interest rates currently stand at 1.25%, lenders will often offer 2-3%. The mortgage market is way more accessible in 2022 than it was in 2007. It's a lot more consumer led now, meaning that borrowers feel more empowered to find the best rate. Now, there are so many products ensuring that those a little bit more risk-averse have the opportunity to find borrowing power."

"I don't think we will see a cataclysmic drop off in the property market this year. If inflation tops 10%, and we reach the Central Bank's projected 3% interest rate, then that could start to have more of a material impact on the housing market."