Reactions to the interest rate rise
Numerous figures in the industry have revealed their thoughts about the interest rates rise announced by the Bank of England at noon.
Nick Chadbourne, chief executive of LMS, notes how remortgaging activity has sky rocketed.
He said: “Over the last month, remortgaging activity has skyrocketed… With 56% of September’s borrowers fearing an impeding rate rise – a significant increase from the 45% seen in August – anticipation of rate increases is driving a surge [in demand for remortgaging].”
John Goodall, chief executive and founder of Landbay, touches upon the challenges landlords have faced over the past couple of years.
Goodall explains: “Landlords have had to face a catalogue of challenges over the past couple of years, from stricter regulation, reductions to tax relief, and a significant stamp duty tax hike when buying a buy-to-let property.
“A 0.25% uplift might seem small, but the message it would give to the markets, of monetary policy normalisation could spook landlords, especially those embarking on long term tenancies.
“In itself, a quarter of a percent is not going to have a huge impact on rental prices overnight, but symbolically it has the power to galvanise landlords to price in many of the tax and regulatory changes that have been building up for some time now.”
David Copland, director of TMA, encourages advisers to take the initiative for clients on variable rate tracker or standard variable rate mortgages.
He said: “There’s no denying that an interest rate rise is going to be a daunting prospect for many homeowners who are on a variable rate tracker or standard variable rate.
“Advisers must use this as an opportunity to get in contact with their clients – both those looking to secure a mortgage and those who already have one. For borrowers approaching the end of their fixed terms and those on trackers, now is the time to look at potential remortgage deals which could offer the safety of a longer term fixed rate.”
Jeremy Duncombe, director of Legal & General Mortgage Club, believes there is no cause for alarm.
Duncombe adds: “This interest rate rise is the inevitable correction we have been expecting. 0.5% is where the base rate had held for 9 years, so there is no need for consumers to be alarmed by today’s increase.”
“Despite this being the first rate rise in almost a decade, it should be seen more as a return to the ‘new normal’ for consumers.”
Alex Maddox, product & capital markets director of The Northview Group, concurs with Duncombe and argues that there is no need to get carried away by the impact of the increase.
Maddox says: “With rates at a record low of 0.25%, there was only ever one way for them to go.
“This certainly marks a turning point for the low interest rate era, and for many it will be the first increase they’ve experienced since becoming a homeowner. However, it’s important not to get carried away by the impact of this increase and remember that rates have only returned to their previous record low level.
“It might be some time before rates rise again, and we’re unlikely to see any near term rise to the higher rates of the past just yet.”
UK Finance have spoken out about the rise with Eric Leenders, head of personal at UK Finance, says savers will welcome a rate rise despite its effects not being felt immediately.
Leenders said: “Given that lenders offering variable rates assess a customer’s ability to pay at much higher interest rates, most should be able to cope with any increases as they filter down.
“Lenders consider a number of factors when deciding how to respond to a change in the base rate, and in this competitive environment where it’s easy to switch providers, customers who are thinking about borrowing money should shop around to take advantage of the best deals on offer.
“Savers will welcome a rate rise, although the effects may not be felt immediately because banks will be looking to balance the increased cost of customer borrowing with the savings returns they offer.”
June Deasy, head of mortgage policy at UK Finance, touches upon the rise in those with fixed rate mortgages: “The majority of borrowers will be protected from any immediate effects of today’s small increase because they have a fixed-rate mortgage.
“Over the last year, two thirds of first-time buyers have opted to fix their rate for up to two years, with a further one in four opting to fix for two to five years.”
Steve Seal, director of sales & distribution at Bluestone Mortgages, is not surprised with the Bank of England’s decision.
He said: “Considering the recent rate rise speculation, today’s announcement hardly comes as a shock.
“For those who have stepped onto the housing ladder in the last nine years, however, this will be the first time they experience a rate-rise as a homeowner.”
Jason Neale, sales director at Magellan Homeloans, concurs: “The rate increase is hardly a bolt out of the blue.
“Do I agree with the decision? Yes, I do actually, because I think it will be good for the country. Hopefully it’ll put pressure on the high street banks to rein in the amount of cheap cash they’ve been dishing out to consumers, which has created the gargantuan mountain of unsecured debt we have today.
“A quarter point rate hike is hardly going to set the world on fire. I think we’ll see an increase in the number of homeowners either needing or wanting to remortgage, especially those who’ve racked up a load of unsecured debt they can’t pay back.”
From an online mortgage broker perspective, Ishaan Malhi, chief executive of Trussle, said: “The age of record low interest rates appears to be coming to an end.
“While we’re only seeing a fractional increase, homeowners who aren’t on a fixed-rate mortgage should still be considering how this will affect their monthly payments.
“Depending on how inflation responds to today’s increase, there’s also every chance we’ll see another base rate rise in the next six months or so.”
Shaun Church, director at Private Finance, argues that rising rates are a key consideration for mortgage affordability.
“Rising rates are a key consideration for mortgage affordability. However, lender’s stress tests are purposefully designed to ensure borrowers can cope with this. It’s also important to remember mortgage rates are still at a very low base and there would need to be a significant amount of movement before the cost of borrowing is no longer considered low.”
David Hollingworth of L&C Mortgages adds: “Although the rate rise only takes base rate back to the same level as before the post-referendum cut in August 2016, it’s significant as will represent the first ever rate rise for a generation of mortgage borrowers.
“Lenders passed on the rate cut last year and so it will be of little surprise to see their variable rates edge back up.
“Those that have so far failed to take advantage of the record low fixed deals will find that rates have already edged up as expectation of a rate rise increased.
“Nonetheless borrowers can make big savings over SVR and also protect against any future rate rises.”
Joe Pepper, managing director of EDM Mortgage Support Services believes more use of technology would help the industry.
He said: “A lot of borrowers are paying historically low fixed and tracker rates at present with very little incentive to move and remortgaging volumes are at a low ebb.
“More extensive use of technology would help the UK mortgage industry to address the problem.”
Robin Fieth, chief executive of the Building Societies Association, touches upon the psychological impact of the first increase in a decade.
Fieth said: “This modest increase in the rate is as expected, but the psychological impact of the first increase in a decade may have some effect on consumer sentiment.
“The confirmation by the MPC that any future increases are expected to be gradual and limited is welcome. Rates remain very low and the impact on household budgets is not likely to be immediately significant for most people, especially as the majority of mortgages are fixed rate.
“We estimate that savers did better at building societies to the tune of £380 million in the first six months of this year. Today’s announcement will however, be welcome news for them.”
David Whittaker, chief executive of Mortgages for Business, said: “While the move to 0.5% only takes us back to where we were in July last year, the change does mean that home-owners and landlords on variable rates will see their monthly mortgage payments rise.
“Mortgage lenders have been preparing for this day for a while. In fact, it only compounds rises already made due to recent movements in swaps and LIBOR – other factors which affect mortgage pricing.
“The most aggressively priced fixed rate products available to home-buyers and landlords are already disappearing so borrowers will have to act quickly if they want to protect themselves against further rises by locking into a good five year fixed rate now.”
Liz Syms, chief executive of Connect for Intermediaries, said: “This is another hit for landlords especially, who have already been affected by so many other measures recently.
“Brokers will come into their own in the next few weeks as there will never have been a more important time for brokers to get in touch with their clients to help them to mitigate against these rises and other costs.
“While some lenders will pass on the rises straight away, mortgage rates are still at historic lows, so if ever there has been a time to remortgage it is now, especially for those on variable rates.”
Richard Pike, sales and marketing director at Phoebus Software, added: “It may be the first rate rise in ten years, but the reality of the MPC’s decision today is that rates are back up to the same level they were in August 2016.
“This relatively small increase will have some impact of course, but then you also have to look at the ways in which it may help the economy. On one hand you have to pay more for your mortgage, but on the other the pound in your pocket is likely to be worth more and go further; if it does what the bank intends and brings inflation down.”