Brian Murphy, head of lending at Mortgage Advice Bureau, said: “With inflation reaching new heights last month it is little wonder that the MPC decided to hike the base rate for another time in a hope to cool the economic climate and regain some sense of stability.
“However, I question whether even this rate rise will have the desired effect upon the housing market and steady the continuing surge in prices. Whilst housing reports over the last couple of weeks have reported a minor freeze in the rate of increase, the level of increase for house prices year on year continues to rise. Demand for housing is also still rife across the country. Within the South East demand often outstrips supply and many buyers will offer over the asking price, which only serves to fuel rising prices.
“It appears that successive rate rises are not helping to discourage buyers; even the predicted increases to 6% seem low in comparison to the dizzy heights of the 1990s. Lenders will also, no doubt, continue to sacrifice their rate margins in an attempt to offer competitive rates for borrowers. While successive hikes will continue to cripple the first time buyer, those already on the property ladder will continue to adapt to changing prices and mortgage rates and lenders will continue to compete for business.”
Jonathan Cornell, Technical Director at Hamptons International Mortgages, said: “The MPC’s decision to raise the base rate this month will take few people by surprise. With inflation last month reaching the highest it has been for ten years and the retail price index hitting 4.8% some big banks are even predicting the possibility of the base rate reaching 6% by early this Autumn.
“The MPC were left little option but to raise the base rate this month, however, I have my doubts as to whether this quarter point rise will dampen house price demand as this will undoubtedly continue to outstrip supply across large parts of the country. What it will do is continue to stretch many borrowers to their limits by making mortgages more unaffordable. With fixed rate deals being pulled by lenders left, right and centre and the distinct possibility that this raise may not be the last, many borrowers who have not acted before today will really start to feel the heat of this rise.”
Michael Coogan, CML Director General, said: "This rate change was a certainty even before it happened. But there is every prospect that inflation will be brought back under control more quickly than the pessimists expect. With four out of five recent borrowers choosing fixed-rate mortgages, the effect of the change will be dampened to some extent - although around half of those with a mortgage are on a variable rate and will see their payments change. But borrowers must expect rates to remain at or around their current levels for the foreseeable future and plan their finances on that basis."
Jonathan Haward, Managing Director of The County Homesearch Company, said: “If the aim was to bring a correction to the property market, then there has been a serious error of misjudgment. It will have little effect on the million plus property market which is being fuelled by those securing large city bonuses and foreign investors who are increasingly looking to the UK as a haven of stability with comparatively low taxes.
"With rising levels of debt, repossessions and bankruptcy, this latest rise will result in further misery for the average homeowner, causing particular suffering for those who have struggled to get onto the property ladder in the last few years. Add this interest rate increase to the proposed introduction of HIPs on the 1st June and the general market is in danger of stagnating."
