After much speculation over the last few weeks, the Governers of the Bank of England have voted to raise interest rates in the UK by 0.75% from 2.25% to 3% – the highest one day rise in 30 years, but what does this mean for you?

Giles Coghlan, Chief Market Analyst of HYCM, said: “Today’s decision from the Bank of England will come as no surprise to the markets, which had already priced in a 75bps hike and forecasted a peak of 4.75% in August next year. In line with consensus, the hike comes as the markets have been restored to some degree of calm following the departure of Liz Truss and her large package of fiscal borrowing against spiralling inflation.

“For now, at least, Rishi Sunak’s elevation to PM has instilled some sense of stability in the gilt markets and the wider economy, which has made the Bank of England’s decision easier today. This was reflected in the fact that the Band Of England now expect to raise interest rates to a lower peak than was previously priced into markets. This will be welcome news to UK homeowners about to renew their mortgages. The impact of the Energy Price Guarantee is seen by the BoE as reducing inflationary pressure to 11% for 2022 Q4 (down from August’s projections), so this will in part be why the BoE see the need to raise rates to a lower terminal rate. The BoE see inflation falling back early next year and back down to 2% in 2 years time.

“The other reason the BoE need to do less is that the fiscal side of things will see more tightening on household budgets. All eyes will now turn to the new prime minister’s first budget on the 17th of November as it will be the biggest factor in determining both the path of the Bank of England’s interest rates and the direction of the GBP.

“It is also worth noting the influence that the Federal Reserve’s meeting on Wednesday has on the GBP. With the Fed revealing that they see higher than originally thought interest rates ahead, it’s too early to call a definite peak in the USD. With this in mind, hopes of a rescue for the GBP from the US must be postponed for a little while longer, as further USD strength will continue to pressure the GBP. Today’s hike is gently GBP negative from the BoE, so the GBP should be pressured today.”

Jatin Ondhia, CEO of property investment platform Shojin said: “There’s no longer any great shock in the Bank of England’s course of action, but we must prepare for the after-effects. Most obviously, while the signs suggested that the property market was already feeling the effects of rising interest rates, this latest, more significant jump, will certainly have an impact.

“As the cost of borrowing climbs sharply, people’s chances of getting onto or moving up the property ladder will diminish, while traditional property investments, like buy-to-lets, will likely become less attractive. We could see people pursue alternate forms of real estate investment, including fractional investment into developments.

“I would expect investors to consider the assets and markets they are backing right now, with diversification a logical route for many during times of high inflation and rising interest rates. Alternative investments could become more popular, with investors potentially seeking to
balance higher-risk options that could better keep pace with inflation at the same time as still gravitating towards safe haven assets.”

David Hannah, Chairman of Cornerstone Tax stated ” The announcement of the biggest interest rate hike in more than three decades today will continue to add strain to homeowners. We are seeing a new level of unaffordable house prices in the UK property market, and the property market is now becoming increasingly difficult to enter for first-time buyers, and even though the average price of a property is falling, the increase in mortgage rates and the decrease in availability of mortgages are significant problems. We all know the challenges the UK’s property market is currently navigating – inflation and rising interest rates are causing a whole raft of issues.

“We’ve seen a surge in building costs and building materials which is slowing down construction and worsening the issue of supply and demand. The affordability of mortgages has worsened and monthly payments soared following the mini-budget announcements, undoubtedly contributing to the fall we have seen in property prices in October. . Despite the rising interest rates, I still see the main obstacle for first-time buyers being the ability to save enough money for a deposit.

“Renters will also feel the effects of today’s interest rate hike. They will find it more difficult to find available properties as landlords are set to experience higher mortgage rates which could deter them from renting their properties and look to sell instead. I think potential landlords will be more cautious when buying buy-to-let properties which will have a significant impact on the availability of homes in the UK.”

Whilst Simon Batth, CEO of iPlace Global followed “The Bank of England’s September rate rise, coupled with the volatility of the UK economy in the wake of the mini-budget announcement, had a significant knock on the confidence of the housing market. It’s clear that aspiring homebuyers currently stuck in the renting cycle will continue to be the most affected by the turbulence of the market, especially as we wait to see how today’s announcement takes affect. Although I anticipate a market slowdown towards the end of the year and throughout next year, the confidence of many young people who seek to get on the ladder still continues to dwindle due to high competition, rising mortgage prices, and widespread market uncertainty.

“At the other end of the spectrum, there are homeowners across the country who have noted the changing landscape and sought to use this opportunity to sell their properties before a predicted price drop. This also includes people who are looking to downsize, in order to afford mortgage repayments and any other expenses in the current living squeeze.

“The government must ensure that support is provided to all ends of the scale amidst constant uncertainty – from those looking to buy their first home, to existing homeowners struggling with mortgage repayments. New schemes must be introduced to replace discontinued ones like Help to Buy, especially for those currently on the outside of the market looking to make their way onto the ladder.”

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