Interest rates rise again – credit industry reaction

The Bank of England has increased the base rate by 50 basis points to 4%, marking the tenth consecutive increase. The bank rate has continued to increase since December 2021, when it stood at just 0.25%.

Commenting on the rise Richard Lane, Director of External Affairs & Operating Subsidiaries at StepChange Debt Charity, said “The continued upward trend in interest rates is putting a significant strain on households, on top of existing cost of living pressures which show little sign of easing.”

“For those on the lowest incomes with the least financial resilience, housing arrears, among other types of debt, are a real risk this year. As recently emphasised by the FCA, it’s vital that firms treat borrowers fairly, including tailored forbearance and signposting to free debt advice, alongside proactively identifying customers who may be teetering on the edge of problem debt.”

“Financial difficulty can affect anyone at any time, and current circumstances mean there could be thousands of people struggling with debt in silence. We would urge anyone worried about rising mortgage rates and their ability to meet financial commitments to reach out for help as early as possible. Don’t hesitate in contacting your lender or speaking to a reputable free debt advice charity like StepChange who are here to support you.”

Joanna Elson CBE, Chief Executive of the Money Advice Trust  saidc“Households are facing increasing costs at every turn, and today’s further rate rise will only add to the worries of many homeowners – particularly the 1.8 million set to re-mortgage this year.”

“With water prices set to increase to their highest level in decades, and energy and council tax bills likely to rise further for many in April, there is no escaping the sustained pressure on budgets. For those homeowners already just about managing, a significant increase in mortgage repayments in the coming months risks pushing them into difficulty.”

“Higher mortgage payments also risks higher rents as landlords pass rising costs on to some tenants. Lenders have a vital role to play to support customers who are struggling and need to be proactive in offering support to customers worried about their repayments.”

Paul Broadhead, Head of Mortgage & Housing Policy at the BSA said “Another Bank Rate rise, the tenth since December 2021, will be unwelcome news for many homeowners. Although the majority of borrowers are on fixed rates, so will not feel the impact of the rate increases until their fixed rate ends, when they do their new rate is likely to be significantly higher than their current fixed rate. For example, it’s likely to cost those at the end of a 2 year fixed rate who re-mortgage to a new similar deal around £200 more a month. For those on 5 year fixed rates, their re-mortgage is likely to increase their payments by around £160 a month.”

“Whilst we have not yet seen an increase in borrowers with mortgage arrears,lenders are sensitive to the rising number of people facing a squeezed household budget and will do everything possible to help each borrower. Anyone who is worried about their ability to pay their mortgage should therefore get in touch with their lender as soon as possible.”

“For first time homebuyers, the rate rises are having an immediate impact as the higher cost of a mortgage, alongside the rising cost of living, will affect their overall affordability. Although house prices have started to fall, they may still need to lower their ambitions  as they’re unlikely to be able to borrow at the level they might have achieved 12 months ago.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “Last week we saw the Chancellor speak of a ‘tax cut’ through reduced inflation, and today’s base rate increase by the Bank of England suggests it is confident in the current plans to tackle the problem. However, many consumers and businesses will be left wondering when they will see the dividends of these measures as borrowing costs remain high.” 

“In European economies, we have seen confidence increase as we progress through the first quarter, though this confidence has yet to extend to the UK economy. The Bank of England will be watching closely to ensure that today’s increase in the cost of borrowing doesn’t worsen the short-term economic situation, impacting consumer and business access to vital credit and putting the Chancellors ‘tax cut’ out of reach.”

“The credit sector must remain vigilant for signs of problem debt amongst customers. Lenders are well-equipped to help concerned customers through the months ahead, bolstered by new guidance on how the industry can assist those struggling to make mortgage repayments.”

Helen Morrissey, Senior analyst at Hargreaves Lansdown said “Today’s interest rate hike piles further pressure on people who are already struggling to make ends meet due to surging living costs. Interest rates now stand at 4% -the highest seen since October 2008. This isn’t necessarily high by historical standards but there are a lot of people out there who have only really known interest rates at record low levels and the speed of the increase has come as a nasty shock.”

“There are some positives on the horizon, inflation is coming down, albeit extremely slowly and many believe interest rates will peak at 4.5% later this year before falling back. However, this is no comfort for those who are already struggling and the prospect of further hikes on the horizon will leave people extremely worried about how they will cope in the coming months.”

John Phillips, National Operations Director at Just Mortgages said “This tenth interest rate rise in a row which takes the bank base rate to 4% is certainly headline-grabbing but the mortgage outlook is considerably rosier than three months ago with re-priced products and prudent lending still available across all loan types and sectors.”

“Six months ago the media was awash with predictions of a housing market crash but this never transpired and house price predictions are now for a static or slight fall during 2023. What this should offer homeowners is reassurance that even if their monthly payments are higher, the value of the asset i.e. their home will remain robust.” 

“The UK has a massive network of affordable and accessible mortgage advice and we need to make it second nature that borrowers take advantage of this resource. The message we should be screaming from the rooftops is for existing and aspiring borrowers to seek professional independent advice to secure the best deal. Brokers need to be more proactive than ever in promoting themselves and building a relationship with a new generation of borrowers in this higher interest rate environment.”