'Unhelpful' interest rate rise hits the housing market

Estate agents have expressed hope that the latest interest rate rise is the last after the Bank of England increased the cost of borrowing measure for the 11th consecutive month yesterday.

Interest rates were increased from 4% to 4.25% by the Bank of England’s monetary policy committee after the surprise jump in the inflation rate yesterday to 10.4%.
The move, although expected by many, was still labelled as a disappointment by agents.

Alex Lyle, director of Richmond estate agency Antony Roberts, said: "A hold in base rate would have been very well received, helping support the momentum we are currently seeing in the housing market, with prices holding up on large family homes with A-star addresses and the volume of sales in the first quarter up considerably compared with the same period last year.

"Even though some areas have proven remarkably resilient to increasing interest rates, this has been less the case the higher they have risen. Further rate rises are most unhelpful so hopefully base rate is close to its peak.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the Bank would trust in its own data and leave well alone.

“Activity is slowly beginning to pick up after a very quiet last quarter of 2022 and the housing market is so important to overall economic prosperity. 

“Of course, it is important to reduce inflation as far as possible in view of its impact on buyer confidence to take on debt. Overall, the economy still feels fairly weak as real incomes are falling so we would have liked to have seen at least one month without a rate rise.”

It comes as many homebuyers have been considering whether to opt for a fixed rate mortgage or tracker amid expectations that rates have hit their peak.

Adrian Anderson, of mortgage broker Anderson Harris, said the latest change will be “particularly challenging” for homeowners who have chosen to take a variable rate mortgage in the short-term, “in the hope that inflation reduces and they can select a lower longer term fixed rate than what is available now.”

Lucian Cook, head of residential research at Savills, suggested the rise may mean prospective buyers remain cautious about moving over the rest of the year and will further tip the market towards cash and equity rich buyers. 

He added: “The impact on buyers’ budgets will weigh on house prices especially in the lower rungs of the housing ladder, where debt is the predominant source of funding.

“The number of borrowers who remain insulated by fixed rates, and the extent to which borrowers have had their affordability rigorously stress tested by lenders, means the shock to homeowners finances should not be wholly unmanageable. These factors limit the risk of a flood of stock hitting the market.”

Nathan Emerson, chief executive of agency trade body Propertymark, said: “With interest rates again rising, we of course expect to see challenges within the market.

"For some current homeowners, the cost to remortgage will mean finding an extra £200 to £300 a month on average, whereas for many of those entering the property market, they will need to re-imagine their budgets and adjust their affordability.

“Previous increases are returning us back to a more sensible market with supply and demand levels evening out. This in turn has started to soften house prices and we would expect this trend to continue to counteract the unsustainable transaction levels and unachievable house price increases seen previously."