"We can keep sending canaries down into the mine but we all know what the outcome is going to be — the UK housing market is headed for recession and a badly needed correction."
Earlier today, the Bank of England raised interest rates by 0.75% to 3% - the biggest single increase since 1989.
Experts from across the property and mortgage markets have discussed what rising rates mean for first-time buyers and homeowners.
Jack Roberts, CEO of home moving platform SlothMove: “We can keep sending canaries down into the mine but we all know what the outcome is going to be — the UK housing market is headed for recession and a badly needed correction.
"It might take a few weeks for the bar charts to show it but this latest rate rise is confirmation enough that the lending environment will no longer permit growth. The eventual winners will be the first-time buyers who have seen affordability ratios stretched to breaking point, destroying the dream of home ownership in many cases.
“The Bank of England is in fire-fighting mode but this blaze of rampant inflation has burned well beyond containment. Consumers and businesses alike are being weighed down with eye-watering price hikes, particularly for energy. For many households, the idea of disposable income is now a nostalgic memory.
"A housing market that has been climbing for months, seemingly blissfully unaware of the economic carnage around it, has probably already peaked and the next six months are going to feel very different. Mortgage rates are climbing too fast and consumer confidence is so low that even a measured decline in property prices may be unrealistic."
Jon Halbert, mortgage and protection adviser at Key Financial Associates: "This rate rise potentially kills the purchase market stone dead and is catastrophic for anyone coming out of a fixed rate. Anyone who fixed their mortgages last year for longer than 2 years, at less than 2% for some and less than 3% for others, may not need to change their spending habits for now. For those families whose fixed rates end in the next few months, this could mean mortgage defaults and even repossession. £100,000 over 25 years at 2% last year would have cost £423.85/pm, whereas the same borrowing at 6.00% will now cost £644.30/pm."
Stuart Law, CEO of Assetz Group: “We have been talking about the end of the buy-to-let era for some time, but today’s interest rate rise really does signal its final death knell, both as a viable sector for investors, or as a model that makes a useful contribution to our national housing mix.
“Even the most committed landlords will now be wondering how they will be able to fund their investments as buy-to-let mortgage costs soar on top of recent tax rises aimed at landlords. Other options do exist for keen property investors that work much better in the context of the current market conditions and policy environment. For example, investing in a portfolio of loans to housing developers means investors can receive typically 6% -9% gross yields as monthly loan interest, rather than pay a higher interest rate to a bank than the rental income for a buy-to-let mortgage. And this investment has significant social impact, allowing more homes to be built for sale and rent at a time when we are facing a deepening national housing crisis."
Ben Woolman, director at Woolbro Group: “The Prime Minister has a real fight on his hands if he’s still determined to turn ‘Generation Rent’ into ‘Generation Buy’.
“First-time buyers have been dealt blow after blow since the Government introduced the stamp duty holiday at the beginning of the pandemic which, effectively, only benefitted existing homeowners and second-steppers.
“And despite helping hundreds of thousands of first-time buyers onto the ladder since it was introduced, the Help to Buy scheme is also coming to an end and the Government seemingly has no intention of replacing it.
“Following yet another rate rise by the Bank of England, young people will be scrimping and saving to buy their first home amid rising energy bills and rocketing rent prices. Sadly, for many, this will make putting money aside for a deposit each month next to impossible.
“But it is the eye-wateringly high mortgage rates that will serve as the main barrier to ownership for many first-time buyers, who simply won’t be able to afford the monthly repayments.
“The Government has a ticking time bomb on its hands when it comes to Britain’s housing crisis – and one for which they may be punished at the polls come the 2024 general election.
“If the Prime Minister wants to restore the Conservative’s reputation as the ‘party of ownership’, he must act urgently to tackle Britain’s housing crisis."
Tomer Aboody, director of MT Finance: "Rising inflation, coupled with the disastrous mini-Budget, mean this rate rise was always on the cards. Borrowers need to come to terms with the new norm, which is higher interest rates – the rock-bottom rates of the past are long gone.
"As rates rise and the cost-of-living increases, the negative impact on the housing market is inevitable. Given the importance of the housing market to the wider economy, the government needs to provide some form of assistance to stimulate the market. This could take the form of a restructure of stamp duty or some form of mortgage interest tax relief to alleviate some of the many stresses that borrowers will face in coming months."
Richard Pike, chief sales and marketing officer at Phoebus Software: “Without knowing what will come out of the autumn statement the MPC are, to a degree, shooting in the dark and borrowers are taking the brunt of their decisions. Swap rates are dropping and lenders may have already factored in this latest rise in the base rate. However, this is not going to be the last increase and borrowers will certainly see their mortgage interest rates increasing over the next few months. The housing market is, I think, heading into a period of stagnation as we wait to see whether the current strategy has any effect on our rising inflation.”
Samuel Fuller, director of Financial Markets Online: “Recession is expected, we might already be in one, and the latest hike will only exacerbate the trouble ahead for the UK housing market, a big determinant of consumer confidence.
“There’s been talk of mortgage rates moderating, even falling, but that’s wishful thinking. Remortgaging and home buying will immediately become harder than it has been for well over a decade thanks to stretched affordability and likely further increases in the cost of borrowing as lenders begin to price in yet more rate rises."
Mark Harris, chief executive of mortgage broker SPF Private Clients: "The market expected a 75 basis points increase, which could have been worse had the Liz Truss government prevailed. Swaps have eased by more than 100 basis points since the mini-Budget, so while 3 per cent may not be the peak for base rate, we don’t believe it needs to, or can go, much higher.
"With the money markets already pricing in their expectations, we are not expecting new fixed-rate mortgages to rise by an equivalent amount. Given how the markets reacted to recent political interventions, gilt yields and Swaps have fallen so fixed-rate mortgages could actually fall in coming days and weeks. Lender appetite and competitiveness may also increase as activity falls, adding further impetus to recent rate reductions.
"There is a trend towards tracker or variable-rate mortgages with no early repayment charges. Borrowers are opting for these in the hope that fixes will settle at a lower level before they move over. If interest rates don’t rise as far as previously feared, variable rates will prove to be increasingly attractive.
"Those on trackers will see their mortgage payments rise by the full amount – someone with a £200,000 base rate tracker mortgage currently paying 3.25 per cent will see their monthly payments rise from £975 to £1,056. Those on variable rates are also likely to see an uptick in their monthly payments but the extent depends on their lender and how much of the rate rise it passes on via its standard variable rate. Thankfully, a very high percentage of borrowers have taken out fixed-rate mortgages over the past few years so no immediate impact will be felt."
Conor Murphy, CEO and founder of Smartr365: “Although this is undoubtedly a challenging time for the mortgage market, there is good reason to be optimistic about its outlook for the rest of the year. Swap rates are beginning to settle, as are average rates across major fixed terms, according to Moneyfacts. Demand is also red hot, with buyers keen to press ahead with purchases despite the uncertainty (only 3.1% of agreed sales fell through in the fortnight following the ‘mini budget’, in line with the 3.0% over the same period in 2019, according to Rightmove). Technology proves its worth more than ever during busy and complex periods such as this. With product withdrawals and replacement happening at relative speed across the board, its role in streamlining the mortgage journey is becoming increasingly important.”
Simon Webb, managing director of capital markets and finance at LiveMore: “We were expecting a base rate rise of 0.75%, the biggest rise in 33 years, taking it to 3%, a rate last seen back in November 2008.
“This year we have said goodbye to the historically low interest rates of the past 13 years, but we should remember that even at 3% the rate is still relatively low. The last time base rate was 3%, prior to 2008, was almost 70 years ago in May 1954.
“Nevertheless, the rise in mortgage rates will be difficult for many people, especially a generation who have only known low rates."
