Tomorrow (March 17), the Bank of England (BoE) is expected to raise rates again to curb continuing rising inflation.
It will be the second rate hike in two months since the central bank’s Monetary Policy Committee voted 5-4 in favor of raising the interest rate from 0.25% to 0.50 %.
With another hike expected tomorrow, mortgage brokers understand the logic but are critical of the timing. Specifically, people who work in the mortgage industry are feeling the additional financial strain that a rate hike could now put on households.
“Should the BoE raise interest rates?” asks Finanze chief executive Alastair Hoyne.
“Without a shadow of a doubt, yes. Can consumers and households afford it? Not far from here.”
The impact on mortgage repayment affordability was cited as the main issue.
Here, the “marginal rise” in rates isn’t helping households or the wider economy, according to Shaw Financial Services founder and mortgage expert Lewis Shaw.
Combined with rising household expenses such as energy costs, it challenges the logic of potentially disadvantaged homeowners: “We’re about to make most households’ largest debt, their mortgage, more expensive .
“Not to mention that push too hard on rate hikes now and there is a very real risk of price flattening, and a concern that they might reduce. Given that the government is poised to support a large number of high-ratio mortgages, in a time of economic hardship, it is not so wise to put more pressure on public finances by lumping private mortgages into the mix.
It’s the same view as Your Mortgage Decisions director Dominik Lipnicki, who recognizes the real pressures on the clients he works with.
“Borrowers now face sky-high household bills and a real cost of living crisis, compounded by the upcoming National Insurance hike and another hike in the energy price cap in October, where the inflation could hit double digits.
“All of this will undoubtedly have a serious impact on affordability calculations when applying for a mortgage,” Lipnicki says.
“We may well see further base rate hikes in the year ahead, creating a much more challenging mortgage lending environment with some out of the market.”
Playing devil’s advocate, Hoyne concedes the pressure the BoE is under and points out that the broader economic backdrop is contributing to the current situation: “Since the global financial crisis and the arrival of quantitative easing, Threadneedle Street has created a booming synthetic economy.
“Banks have lent out massive amounts of printed money, creating excessive debt, allowing consumers to buy what they want, and buy it now. This has led to inflation getting out of control and now, with With the war in Ukraine causing an oil price spike, individual households have been left metaphorically and literally “out in the cold.” The BoE is in an almost impossible position.
London chief financial officer Martin Stewart is also critical. However, he questions the timing of the rate hike more than anything, given the current inflationary pressures facing families.
“I personally don’t think mortgage affordability is the elephant in the room right now,” Stewart said.
“Is it time for the BoE to add fuel to the fire? Do we really think that an increase in the base rate of 0.25% is going to help the consumer at a time when he needs help, and not the reduction of something that can last a few more months and up to things a little clearer? »
Given that interest rate tomorrow is taking place during the ongoing conflict between Russia and Ukraine, which is already impacting the markets, the London Money director wonders if the current moment is not too sensitive to change the base rate.
He adds: “At some point they will have to bring the base rate down to some level of economic functionality but, given the current levels of geopolitical uncertainty, I would say wait a few more months to see how it all plays out. , would it not be the worst idea in the world.
Taking a more optimistic outlook, Cyborg Finance Managing Director Mark Hosker points out that rising inflation has the potential to support borrowers.
“Inflation itself is the borrower’s friend,” says Hosker.
“Inflation can reduce the value of debt if your wages/rents keep pace. The trend towards longer-term fixed mortgages and official statistics showing rising wages make me optimistic.
“We asked 54 real estate investors if they thought ‘real estate is a hedge against inflation’ – 88% of them agreed this was the case. Borrowers, in addition to being cautious about their mortgage rates, must ask for salary and rent increases to keep the fight going.
Mortgages for Business Business Development Manager Jeni Browne adds: “In terms of the impact of rate hikes on our clients and their plans, of course some investors may be discouraged, but others are operating like d usual, acknowledging that rates have been artificially low for years now, and seeing the increases as a return to normal.
“This, combined with an expected increase in rents of more than 20% over the next five years, means they can look beyond interest rates and look at a broader return on investment.”
And Connect Mortgages owner Liz Syms said: “Lenders have already adjusted the rates on their new products to reflect this expectation and there has been a flurry of activity as brokers and clients try to secure the existing rates before the changes.
“While any rate hike will have a significant effect on many, we are still in a very low interest rate environment, and some see it as simply a return to normal, having benefited over the past two years from lower payments. to normal.”