Interest rate decision - May 2022

ended 05. May 2022

At midday today, the Bank of England increased rates by 0.25% to 1%. We sought the views of mortgage brokers and IFAs on what this will mean for household finances. Their views will appear below until 2pm today.

14 responses from the Newspage community

"As expected, the Bank of England has raised rates for the fourth time in a row. This puts us well on the way to a potential recession as people's incomes are stretched and borrowing costs continue to rise. We can only hope this goes some way to bring inflation under control but it's unlikely that it will, meaning there's likely more pain already baked in for the rest of the year. The bigger news is that the Bank of England will consider beginning the process of selling UK government bonds held in the Asset Purchase Facility. So to take all this together, we've got rising energy costs, rising food costs, rising borrowing costs and stagnant wages. The recession is well and truly on the way."
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"Times are getting harder for homeowners. The increase in Base Rate will mean additional monthly costs on mortgages once they come out of a fixed rate. Combined with the ever-increasing cost of living, there is a real squeeze. Those with savings will benefit from the increase although we will wait and see how quickly banks pass this onto them. Don't hold your breath."
"We have already seen a significant rise in mortgage rates and Thursday's quarter per cent rise will add more financial pain for those on tracker rates as well as people coming off a fixed deal. For some, that may mean a doubling of their interest rates which, along with the current inflation crisis, means many people will face a very difficult time ahead. We are seeing more borrowers becoming interested in 7 or 10 year fixed rate deals, looking for that much needed long-term stability. For many, the frustration is that this further rise in the base rate will have little impact in curbing inflation."
"From an investment and macroeconomic perspective, there were no real surprises with Thursday's decision. As the direction of interest rates has been well signposted, the markets have priced in several rises this year. This latest rise will have little impact on the markets and it will not impact the advice we are giving our clients. We believe that investors will maximise returns by ignoring short-term monetary policy decisions and taking a long term perspective by maintaining a globally diversified investment portfolio."
"It is no surprise that the Bank of England has made the decision to increase rates further given the backdrop of raging inflation. The money markets have been pointing to this and are expecting further rises over the course of the next year. Whilst many borrowers will be protected because they have a fixed rate mortgage, there is a concern that rate rises, on top of the current cost-of-living crisis, will lead to some prospective borrowers having issues meeting affordability calculations in the future. The Bank of England have a delicate balancing act, as while it needs to be seen to be doing something, small rises alone will not be enough to curb the current cause of inflation, but could well help to tip the economy into a slowdown or even recession. On the other hand, there are a whole host of savers who will be delighted at the news, having played second fiddle to borrowers for a long time now. That's if the banks play ball and pass the rate increase on."
"This will not be last rise in rates we are going to see in the coming months, there are predictions that Bank Rate could rise to 2% by the end of the year. There will be many borrowers coming to the end of a fixed rate this year who will see mortgage interest rates possibly doubling compared to the rate they have been paying. We are seeing interest rates that many mortgage borrowers have not experienced and with financial pressures increasing on consumers from all angles there will be an increase in financial casualties, especially for those who are highly geared and have borrowed close to their maximum affordability."
"The increase in interest rates to 1% will, in effect, tighten the noose around the necks of business owners. Rising inflation, soaring operational costs, repayments of pandemic recovery measures, supply chain disruption, and now interest rate hikes will sadly force many firms into insolvency or restructuring. For financially sound and resilient businesses, opportunities will be created. Whatever the situation, it is critical that business owners seek help wherever they can and collaborate with a funder who will steer their recovery in both the short and long term. Now more than ever, businesses need access to solutions that address their financial challenges while enabling opportunity for growth. Our clients are already approaching us to seek the support they so urgently need, which is a clear indication of what is happening in the wider business landscape."
With many commentators expecting a hike of 0.5%, and indeed three of the nine MPC members voting accordingly, this is perhaps a more measured approach than expected. Whilst the Bank of England are concerned about inflation and keen to be seen to be taking action, they'll also have one eye on a potential UK recession as the cost of living crisis starts to hit consumers. They're treading a fine line, and will continue to do so until at least the end of the year.
"The Bank of England's interest rate is no longer zero-point-something but has finally clawed its way back up to 1%. This is hardly a surprise and to a degree we should be grateful that they didn't increase to 1.25%. Now we all watch and wait to see if it has the desired effect on inflation, or if we can look forward to further rises in the coming months. Spoiler alert: it's very likely we'll see more rises before the end of the year."
The Bank of England has increased rates to 1%, the highest level in 13 years. With inflation set to peak at 10% at the end of the year what does this mean for your household finances? Well, if you are on a variable rate mortgage, it's time to fix and quickly. Those currently on a fixed rate mortgage will not be affected, but borrowers coming to the end of this deal will be in for a shock when they come to remortgage. If you're close to the end of your current deal, you might want to consider a new mortgage deal now. You can usually lock in a mortgage deal three to six months ahead of the current end date. Speak to a mortgage broker now to review your mortgage and finances to ensure your cost of living is affordable to you. With economic growth now expected to slow, this could apply downward pressure on house prices, which won't be a bad thing for First Time Buyers. But with higher rates meaning more expensive mortgages, this will likely impact on the affordability of those currently house hunting. Independent whole of market broker advice is vital to navigating this difficult time we are facing. For those in later life who may be hit hard by the cost of living crisis, unlocking the cash in your property via equity release can be a good solution to ensure you can continue to enjoy your retirement."
"No surprises, rates are going up. If your have a tracker mortgage, the cost will increase. This will have an impact on the cost of living as a mortgage is normally the most significant outgoing."
"Working families are already feeling the squeeze with rising living costs, and utility bills are set to rise again later this year. This latest rate rise will mean anyone sitting on a variable rate or tracker will feel the effect immediately. Mortgage swap rates are also seeing increases so I don't expect fixed rates coming down anytime soon."
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Peter Williams
CEO at Propp
"Homeowners and investors alike are already feeling the pinch and are now set to be squeezed further by rising mortgage payments. It really is so important that people get their rates fixed before we see further rises in rates throughout the year. This is going to be a very difficult year for many people. We are facing a summer and winter of discontent. Swap rates have increased so we cannot see fixed rates going lower for a while."
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Ross Boyd
CEO at Dashly.com
"I'm surprised rates didn't go up by 0.5%, all the more so after the increase by the US Federal Reserve. You have to wonder whether such small and incremental rates will have any effect in clawing back inflation. Clearly people on fixed rate mortgages will be OK for now, but the rate shock when their fixed rates come to an end is going to be significant. We could see many more rates rises over the course of the next year as Threadneedle Street seeks to combat spiralling inflation."