Interest rate increases for 11th consecutive time – credit industry reaction

The Bank of England has raised interest rates for an 11th consecutive time to 4.25% following the surprise rise in inflation.

The Monetary Policy Committee (MPC) voted for this change by a majority of 7-2, with the minority vote wishing to keep the rate at 4%.

Commenting on the rise, Paul Broadhead, Head of Mortgage & Housing Policy at the BSA said “As household budgets continue to be squeezed, another Bank Rate increase will be an additional budget challenge for borrowers on variable rates and those coming off a fixed rate this year.”

“It is positive that our latest figures1 show that around nine in ten homeowners are not currently concerned about their ability to make their monthly mortgage payments. However, there are around 1.8 million households coming to the end of a fixed rate in 2023 and most will see a significant increase in their mortgage costs. On average this will be around £2202 a month for those coming to the end of a two-year deal.”

“Only time will tell whether these increases have already been factored into household financial planning. Lenders remain alert to borrowers facing a payment shock and are ready to offer tailored support to anyone who may be struggling.”

Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Storm clouds are building for many households with today’s rise in interest rates coming a day after inflation was shown to have risen again in February.”

“For homeowners already struggling, further increases in mortgage costs will be a major concern, especially for those on variable rates or coming to the end of their contracts. And for many, affording higher repayments will be even harder, as the sustained pressure of rising prices continues to be felt.”

“Renters are also likely to be hit, as landlords pass rate rises on to tenants, leaving many peoples’ budgets with no stretch left.”

Andrew Fisher, Chief Growth Officer at Freedom Finance said “The eleventh consecutive rate hike from the Bank of England takes the base rate further towards levels not seen since before the financial crisis.”

“However, despite a surprise inflation reading this week, we appear to be nearing the end of the rate-hiking cycle which is already starting to feed through into the secured and unsecured lending markets. Personal loans and credit cards have both seen their average quoted rates drop at the start of 2023, while mortgage rates are down from the market turmoil in September.”

“The biggest concern for the credit sector now will be further jitters in the global banking sector following the high-profile problems we have seen over the past fortnight and whether we may consequently see lenders retreat from the market. However, the UK sector is well-capitalised and looks well-placed to ride out this turbulence.”

“For consumers looking for credit products, our advice remains the same. Shop around and use the available technology such as soft searches and digital marketplaces to make sure you are getting the most suitable deal for your circumstances. As rates continue to reduce, debt consolidation could also become increasingly attractive so borrowers should ensure they are regularly reviewing their finances.”

John Philips, Operations Director at Just Mortgages said “This latest 0.25% rise may feel like a step in the wrong direction for the mortgage market but it’s widely accepted to be a necessary step in the battle to curb inflation. Although the base rate has gone up we have seen mortgage prices falling in recent months and customer enquires to our brokers across the country have been remarkably robust since the start of the year. The advantage of yet another rate rise is that nobody should be caught off-guard and I think that brokers are doing a tremendous job in managing the expectations of clients and finding them the right deal.”

Kellie Steed, Uswitch.com Mortgage Expert said “On 23 March 2023 the Bank of England’s (BoE) Monetary Policy Committee (MPC) chose to raise the UK base rate to 4.25%. Whilst a less steep rise than the previous 0.5% in February, this 11th consecutive increase in the base rate may come as a surprise to some.”

“As to whether more rises are expected throughout the remainder of the year, economists are largely split in their decisions, due to uncertainty over current volatility in the global banking system. The MPC will not now make their next base rate decision until 11 May.”

“For consumers looking for credit products, our advice remains the same. Shop around and use the available technology such as soft searches and digital marketplaces to make sure you are getting the most suitable deal for your circumstances. As rates continue to reduce, debt consolidation could also become increasingly attractive so borrowers should ensure they are regularly reviewing their finances.”

Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said “A rise to base rate will come as disappointing news to borrowers who are not locked into a fixed rate mortgage, as their monthly repayments may rise in the coming months amid a cost of living crisis. Those borrowers who wish to refinance might be pleased to see that fixed rate mortgages have fallen since the tail end of 2022, and that it is currently cheaper on average to lock into a five-year fixed rate over a two-year fixed deal. The incentive to fix is clear from the continued rise to the average Standard Variable Rate (SVR), which is now above 7%, a level not breached since 2008. A rate rise of 0.25% on the current average SVR of 7.12% would add approximately £772* onto total repayments over two years.”

“Affordability may well be the key challenge for borrowers struggling with the cost of living crisis, as interest rates are higher than prospective buyers, or those looking to remortgage, were perhaps anticipating. Whether now is the right time to get a mortgage will entirely depend on someone’s individual circumstances, so seeking advice is vital. In the meantime, it would be wise for borrowers to keep a close eye on the mortgage market, housing supply and house prices, particularly for new buyers who are a critical part of keeping the market moving.”