Interest rates rise to 3.5% – credit industry reaction

The Bank of England’s Monetary Policy Committee has voted to increase interest rates to 3.5 percent, a rise of 0.5 percentage points.

The latest rate increase marks the ninth hike this year and the highest level since the financial crisis 14 years ago.

Around three quarters of mortgage customers are on a fixed rate mortgage and will not see an immediate change to their monthly payments.

Commenting on the rise StepChange Chief Executive Officer Phil Andrew said “Rising interest rates may be designed to dampen inflation but this isn’t an instant process, and at the moment the households with the least financial resilience are facing the double whammy of both at the same time.”

“It looks as if housing debt will be a particular pressure facing millions of households in 2023. It will be particularly important that forbearance continues to support households through a period of financial stress that they have neither created nor can control.”

“Mortgage holders, who had typically experienced low and stable rates for some considerable time before the recent market shocks, are at the front end of the impact. With the FCA already having written out to firms to remind them of their forbearance obligations, it’s important to emphasise that no-one is immune from the risk of problem debt and that help exists if people need it.”

“We know from our clients’ experience that it’s human nature to try to cope with financial difficulty until debt problems come to a head, but we very much urge anyone experiencing the beginning of any financial pressure as a result of rising interest rates to get help as early as possible, before problem debt becomes entrenched, and when there are more options available to help you.”

Joanna Elson CBE, Chief Executive Officer of the Money Advice Trust said  “Households are under pressure from all directions as the sustained impact of high food, fuel and energy costs continues to stretch peoples’ budgets to the limit. And with interest rates rising further, this will only add to the worries of millions of people as we head towards the New Year.”

“For the majority of homeowners who are on fixed rate mortgages the effect won’t be felt straight away, but for those on variable rates, the impact will be felt more immediately. Higher mortgage payments are also likely to add to higher rents with landlords passing rate rises on.”

John Phillips, National Operations Director at Just Mortgages said “This was perhaps the least surprising rise in the past few months as it follows a half percent rise by both the US and some of our European friends such as the Swiss. Although the fact that this is the ninth increase in a row will grab the headlines, there is however good news as we see reports of inflation easing and the annual rate of price increases slows. And let’s not forget that house prices even in the midst of a cost of living and energy crisis continue to rise with figures from the Offices for National Statistics revealing that on an annual basis, average UK house prices were 12.6% higher than in October 2021, up from 9.9% in September.”

“The underlying housing market is still strong and brokers should be working their socks off to expand their businesses by diversifying into new product areas and ensuring their clients’ protection needs are met. ”

“Every interest rate rise is an opportunity for brokers to open a dialogue with existing and new mortgage clients.”  

Paul Broadhead, Head of Mortgage & Housing Policy at the Building Societies Assocation (BSA) said “Another Bank Rate rise, the ninth since December 2021, will be unwelcome news for many homeowners, particularly as this is alongside the rising cost of energy, fuel, food and other items.”

“Whilst 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. Borrowers will therefore need to consider the impact of higher mortgage payments alongside all the other increasing demands on their monthly earnings.”

“It’s likely to cost those at the end of a 2 year fixed rate who re-mortgage to a new similar deal around £289 more a month. For those on 5 year fixed rates, their re-mortgage is likely to increase their payments by around £244 a month.”

“Whilst we have not yet seen an increase in borrowers with mortgage arrears, we remain alert to the economic conditions, which are rapidly changing. It’s worth noting that lenders are sensitive to the rising number of people facing a squeezed household budget and have teams who are well trained and experienced in providing tailored support to those who are struggling. Anyone who is worried about their finances and ability to pay their mortgage should therefore get in touch with their lender or a debt adviser as soon as possible. They will provide a safe space for a confidential, non-judgmental chat and will do everything possible to help each borrower with options based on their own personal circumstances.”

Today’s rise in the base rate was widely predicted, but there is also a sense in the air that the decision to go for an increase – with today’s the ninth in a row – may be less of a one-way bet in coming months.”

“This time last year, the base rate was just 0.1%. The precipitous climb in borrowing costs in under 12 months has hit small firms hard, eroding their margins at a time when many are struggling with the very cost increases which prompted the Bank of England to increase the rate in the first place.”

“Energy costs are by far the biggest driver of the inflation that businesses and consumers are experiencing, and interest rate increases are doing little to rein in energy bills, while making it harder for small firms to keep the lights on.”

Jayadeep Nair​, Chief Product & Marketing Officer, ​Equifax UK said “There are undoubtably tough decisions ahead for both consumers and the credit industry, as we continue to adapt to a quickly changing economic environment. Rising interest rates will remain a concern for borrowers, especially as many on fixed rate mortgages brace themselves for significant rises in monthly spending in the next 12 months.”

“How the industry identifies and cares for consumers who find themselves struggling is increasingly important. It remains paramount for the credit industry to keep pace with changing consumer habits to ensure that affordability criteria reflect the reality of the financial situation and continue to deliver outcomes for lenders and borrowers alike.”