BoE interest rate hike – property world reacts

BoE interest rate hike – property world reacts

13:58 PM, 22nd June 2023, About 10 months ago

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In a bold move, the Bank of England has implemented an unexpected half per cent interest base rate increase to hit 5% – the highest since 2008.

Seven out of the nine committee members voted for the move, and they acted after seeing the mounting market rates for government borrowing.

For now, this aggressive interest rate rise serves as the Bank of England’s response to the pressing inflationary challenges facing the nation.

Here’s what the UK’s property world had to say about it:

BTL landlords have become ‘mortgage prisoners’

Angus Stewart, the chief executive of the online BTL mortgage broker Property Master says that BTL landlords have become ‘mortgage prisoners’.

He said: “The continued increase in interest rates is causing a perfect storm.

“George Osborne’s changes to the rules on interest rate relief in 2015 had minimal impact when interest rates were low.

“However, they are now seriously impacting the profitability of a landlord’s business.”

‘Many landlords cannot remortgage at current rent levels’

He added: “Coupled with much tougher affordability rules means that many landlords cannot remortgage at current rent levels leaving them on the lender’s SVR some of which are approaching 10%.

“They are mortgage prisoners, and the logical option is to sell or substantially increase rent.”

Research from Property Master highlights that 40% of landlords have either recently sold or are considering selling one or more properties.

And while media coverage has been of helping homeowners with the increasing costs of mortgages, the firm says it is crucial the Government doesn’t ignore landlords.

‘Attempts to curb inflation haven’t quite gone to plan’

Jonathan Samuels, the chief executive of Octane Capital, said: “As of yet, the Bank of England’s attempts to curb inflation haven’t quite gone to plan and so today’s increase was to be expected.

“While a half a per cent jump may seem substantial, it should help the Bank of England regain a grip over the situation at hand, as currently, it trails the Federal Reserve and needs to catch up if we want to see inflation fall like it has in the United States.”

He added: “So all things considered, today’s increase is probably appropriate, although this isn’t the news the nation’s borrowers were hoping for.”

‘Rate rise to have an impact on overleveraged buy to let investors’

Matt Thompson, the head of sales at Chestertons, said: “We expect the rate rise to have an impact on overleveraged buy to let investors whose increased mortgage payments could lead to their investment making a limited profit or even a loss.

“This could result in some landlords deciding to offload their assets.”

He adds: “At this stage, we haven’t yet encountered homeowners who have been forced to sell up but, if rates continue to rise, some owners may be forced to review the situation and weigh up their options.

“At the same time, demand for properties in London continues to stay strong as the capital remains a hotspot for a variety of buyer demographics, including international buyers.”

‘The Bank of England has delivered’

Sarah Coles, the head of personal finance at Hargreaves Lansdown, said: “Yesterday’s shock rises in core inflation drove away any last vestiges of doubt about the need for more rate rises, and the Bank of England has delivered.

“A punishing 0.5 percentage point hike to 5% signals that it’s prepared to do whatever it takes to squeeze inflation out of the system. It’s a horrible blow for millions of mortgage holders.”

She added: “Tracker rates will rise with every Bank of England hike, and there’s a strong chance that most SVRs will increase too.

“Plenty of people whose fixed deals came to an end in the past six months or so have switched onto a variable rate mortgage in the hope that fixed rates would fall. The fact that they’ve stayed so alarmingly high means this is proving a very expensive strategy.”

Ms Coles says that anyone struggling with a remortgage should speak with their lender because ‘the FCA has issued new guidance encouraging them to be more flexible with people facing a mortgage crunch’.

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