The Bank of England’s Monetary Policy Committee has voted 5-4 to increase the Bank Rate by 0.5% to 2.25% – the highest level since 2008.

At its meeting ending on 21 September 2022, the MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25%. Five members voted to raise Bank Rate by 0.5 percentage points, three members preferred to increase Bank Rate by 0.75 percentage points, to 2.5%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2%.

Since August, wholesale gas prices have been highly volatile, and there have been large moves in financial markets, including a sharp increase in government bond yields globally. Sterling has depreciated materially over the period.

The MPC says its remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target.

Despite today’s rise coming in slightly under the widely predicted 0.75% rise, rates are expected to rise again in November and December, with predictions as high as 3% by the end of the year

Brian Murphy, Head of Lending at Mortgage Advice Bureau, comments: “The Bank of England’s interest rate decision today will not surprise anyone, but that doesn’t mean it is a welcome announcement. Whilst we must commend the efforts of the policymakers to intervene in the current inflation nightmare, the negative impact of the rising rates on mortgages and sky-high house prices has been felt by many, whether they are a homeowner or prospective buyer. In the context of further rate rises, being savvy can’t outmanoeuvre the increasingly unfriendly property market environment.

“Nevertheless, if you decided against locking in a fixed rate mortgage after last month’s rise, we would certainly recommend looking into it now if you can, as it can offer a degree of protection if this upwards trend continues as seems likely. Do bear in mind the penalty you may face for switching early, and that everyone’s circumstances are different, so the best advice for everyone is also different. As such, the best course of action is to speak to a whole of market mortgage broker or your mortgage lender about the financial implications of the latest rise for your own personal situation.”

Alex Maddox, Capital Markets & Digital Director at Kensington Mortgages, comments: “This is a good first step, although 0.75% might have been a better step, towards getting the Base Rate from 1.75% to a level more in line with long-term history and the current level of inflation. Market consensus is for peak base rates of almost 4.75%, so there will need to be many more steps of this size if the market forecast is correct.”

Avinav Nigam, co-founder of real estate investment platform, IMMO, says: “Hiking interest rates is one way to curb spiralling inflation by reducing consumer demand. However, it has a severe impact on mortgages, as the rate of borrowing climbs even higher. Coupled with the affordability crisis, this will make owning a property even more out of reach.

“It most significantly impacts the circa 900,000 borrowers on variable-rate mortgages, as well as the 1.1 million on standard variable rates.

“We could see an increase in the supply of properties coming to market as mortgages become unaffordable. There’s an increased risk of mortgage defaults, affecting consumers’ lives directly.

“This all means that we are set to see a shift from a sellers’ market to a buyers’ market over coming months. Cash buyers and investors with more disposable money will find it easier to buy properties.

“Rising rates give consumers less flexibility when it comes to housing and mean they have to move towards renting as buying becomes unaffordable. The need for professional landlords to provide safe, affordable and quality homes for renting is stronger than ever.”

Richard Pike, chief sales and marketing officer at Phoebus Software, says: “This was probably the worst kept secret this week, that and the expected cut to stamp duty tomorrow. While we were expecting it this rise, although not the 0.75% that many had touted, is one that will add further pressure to finances that are already under so much pressure with the rising cost of living. Savers will of course see the difference in a positive way, but it is mortgage borrowers that will taking the brunt of this increase.

“In his fiscal event tomorrow the Chancellor will have a chance to ease the burden, but for anyone on an SVR the cost of their mortgage is the one thing that he will be unable to affect now that the Bank of England has put rates up again. The focus for mortgage lenders must be on affordability and using all the tools at their disposal to ensure they are keeping track and identifying struggling borrowers. Acting now could save a lot of unnecessary anguish down the line.”

Kevin Roberts, Managing Director of Legal & General Mortgage Services, comments: “Today’s decision to raise the base rate comes as no surprise to those watching the headlines. Inflation and rising energy costs have dominated the news and it’s clear that the Bank of England is committed to fighting this. Of course, these decisions don’t exist in a vacuum and borrowers may be worried about what the knock-on effects of today’s news will be on their future mortgage payments and ability to borrow. For many of these borrowers, or would-be borrowers, this latest worry may just add to serious existing concerns about winter energy costs and a general rise in the cost of living.

“Rates are only one part of the puzzle though, and it’s important to stress that activity in the housing market still remains very healthy. Additionally, many existing borrowers, for instance, those on fixed-rate mortgages, won’t actually see any impact on rates until their current deal ends. There might also be help on the horizon for new borrowers, as the government is expected to announce a cut to Stamp Duty later this week. There are then some reasons for positivity, in spite of the headlines.

“As an industry, we need to acknowledge though that some borrowers may have difficulty navigating this quickly-moving environment and may be unaware of the support available to them. This is an opportunity for advisers to show their true worth. Good quality financial advice will be crucial in helping borrowers see past the initial headlines and understand what all this news means for their particular situation. Speaking with a mortgage adviser can help borrowers to better understand the options that are available and find a solution that’s right for them.”

Andy Sommerville, Director at Search Acumen, comments: “Rate rises have become one of the most predictable events of 2022, but the implications for property buyers are huge when we’re fast approaching the point where the average UK home costs more than ten people’s salaries. The ‘fantasy economics’ underpinning the housing market are all too real for would-be homeowners, whose ability to save is hampered by rising rents and soaring inflation.

“Low-interest rates have been the balm that has soothed the burning affordability crisis for much of the last decade. This latest rise risks leaving first-time buyers stranded at the foot of the property ladder with more financial pressures than ever to weigh them down.

“More than ever, Government needs to get to grips with the structural shortages that are holding back the market if it wants to relive the post-war boom that drove housebuilding to new heights. Cheap credit and inflationary incentives can’t keep the fires burning when the market needs planning reform and digital transformation to make it fit for purpose.”