Bank of England raises interest rates to 1.25%

The Bank of England has raised interest rates for the fifth time in as many meetings as it tries to get a handle on soaring inflation. The Monetary Policy Committee voted in favour of increasing the Bank Rate but while six members wanted a rise of 25 basis points to 1.25 per cent, three members favoured a more aggressive 50 basis points hike.

The Bank Rate is now at its highest level in 13 years, as the Bank also announced that the headline rate of inflation is expected to hit 11 per cent by the autumn (well above the Bank’s 2 per cent target).

The latest rate rise had already been factored in by the money markets, and will help cap some excess spending by consumers, although many have been cutting back where they can for a while in the face of rising bills and the wider cost of living.

Mortgage pricing continues to edge upwards, but many lenders have not passed on the full extent of previous rate rises due to the highly competitive market. If they wish to attract business, they need to absorb a proportion of rate increases; the question is, how long will they be prepared to do this for?

While this rate rise is unlikely to be the last of them, borrowers should not panic. We remain in a low interest rate cycle, even with this latest rate rise. Planning ahead and seeking advice from a whole-of-market intermediary will help minimise any financial pain.

Meanwhile, house prices also continue to rise

Remarkably, as interest rates and the cost of living continue to rise, so too do property prices. We are coming up to a year of month-on-month growth in house prices, fuelled by eager buyers looking for more space, while taking advantage of the low interest rate environment.

However, with the latest Rightmove house price survey showing that the pace of growth in asking prices is more subdued compared with previous months, the tide may be beginning to turn. The price of property coming to market in June hit a fifth consecutive record of £368,614 but this was up a modest 0.3 per cent on the previous month, as the pace of growth slows. More stock coming to market also means buyers have more choice so sellers who wish to get a deal across the line and take advantage of record prices perhaps need to be more realistic.

With prices rising by 74 per cent over the past decade, according to the Halifax, the market has been running away from first-time buyers. There are concerns that the Bank of England’s decision to scrap the mortgage market affordability test from August will enable them to take on bigger mortgages, pushing up prices further still.

However, as rates rise, buyers will have less confidence in stretching themselves to buy their dream home, especially when it comes to properties needing work. Buyers are increasingly cautious in their bidding, shying away from taking on renovations or other home improvements, due to uncertainty in terms of prices for material and labour.

 How MT Finance can help

 While the turning tide may be better for the overall health of the housing market, particularly when it comes to first-time buyers, it is also providing impetus for sellers who are keen to take advantage of potentially the final few months of the flurry, and sell at a record price.

If you are a property investor or landlord and have to move quickly to secure an investment property and quick finance is required, MT Finance can assist. For those wishing to purchase an investment property in this highly competitive market who are not cash buyers, a first or second charge bridging loan can increase your desirability as far as vendors are concerned.

For more information on MT Finance’s short-term funding options, please get in touch online or on 0203 051 2331.

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