It is believed that the UK mortgage industry spent this week taking note of the decision of the Bank of England to increase the interest rate base by one quarter-point to 0.5 0.5%.
Although the rate hike on Thursday was widely anticipated, it was the first back-to-back rate hike since 2004. It also followed following an enormous energy price hike.
Incredibly, four of nine policymakers wanted an increase of 0.75 percent in response to the rise in inflation expected to rise to the 6% mark this month before reaching 7.25 percent in spring.
In a sad reference to ‘Black Friday, The BOE anticipates that spending power will drop by 2% in the coming year, which is the most significant reduction in the standard of living for households in over 30 years.
To put it in perspective, the impact could be five times as severe as the 2008 recession, where income was reported to have dropped by 0.4 percent.
In the case of homeowners with the standard variable rate, this could increase mortgage payments because lenders could transfer the cost to the borrower.
Sarah Tucker, the founder and managing director of The Mortgage Mum, told Mortgage Introducer that more people are looking to refinance their properties and look at their fixed rate before any additional increases are made.
She stated: “I’ve already had many inquiries from clients of mine who aren’t planning to refinance for up to three years, inquiring about the cost of their options today. There’s a lot to anxiety, but I believe the future rate rise predictions are right.”
The fact that four of nine policymakers favored an even more significant base rate hike proved that future increases were anticipated.
“Experts are reported as saying that the rate of interest will be 1.25 percent by the end of the year. This could have a major effect on borrowing costs,” she added.
“On certain levels, we can understand why they’re doing this. Demand remains extremely high in the real estate market, and inflation is twice what they hoped. By making borrowing more expensive, they hope to bring this down.”
She also said many of her customers with tracker and variable rate mortgages “will be receiving calls encouraging them to consider fixed rates.”
She said: “We predict a rise in the much-anticipated fixed-rate mortgages for ten years. The majority of people want security in one aspect of their lives. And with all the uncertainty that exists all around, the 10-year fixed rate is attractive. This is one less thing to be concerned about!”
Graham Cox, the founder of Self-Employed Mortgage Hub, was mentioned by The Daily Mail, saying that the increase in energy caps will “inevitably make it more difficult for individuals to obtain a mortgage.”
He predicted that all lenders would include the hike and other price hikes, like fuel and food “into affordable calculations,” When interest rates increase, and house prices rise, he said they would fall “within several months.”
In contrast, Simon Jackson, chief executive officer of MSS Simon Jackson, MSS’s chief executive officer, stated that he remains confident about the country’s housing market’s potential.
He stated to Mortgage Introducer: “It remains in good health and is likely to withstand gradual and proportionate rises on interest rates.
“Given the headwinds of inflation affecting our economy, we believe the course to the rate of interest is evident. For most homeowners, the interest rates will remain historically low and well below the level of affordability that is deemed acceptable by their lender upon application.”
Director B & W Bridging’s director B & W Bridging, Damien Druce, said the modest increase in interest rates was necessary.
“Sensible and sustainable” increases will tackle the issue of inflation and costs of living that is an issue for many families with low incomes up and across the nation.
“Moreover, it will bring us back to the point before the pandemic where there was a housing boom that was in good shape. I anticipate an increase of one or two during the year and for our housing market to take them on easily,” he said.
Apart from the issue of rising rates, consumers are also being confronted with the most significant price increases in nearly ten years, as well as the staggering rise in energy costs after regulator Ofgem said they would rise in the range of PS693 per year starting in April.
The timing is scheduled to match the 1.25 percent increase of National Insurance contributions.